Firm News

Private Equity 2023 Year-in-Review and 2024 Outlook: Clearer Skies Emerge for Private Equity Amidst Challenges

calendar iconFebruary 5, 2024

Cherry Bekaert (the Firm) has published its annual year-end Private Equity Industry Report outlining important developments that impacted the private investment markets in 2023. The report found many headwinds that slowed private equity dealmaking in 2022 continued to impact the industry over the course of last year, causing deal activity to decline sharply for the second year in a row. The M&A environment is now grappling with its longest decline in over a decade.

The report highlights the many challenges faced by the sector over the last 12 months and features data provided by PitchbookTM and other sources, including proprietary Firm data. Though many of the challenges were carryovers from the previous year (persistent high interest rates and inflation; a stark valuation gap between buyers and sellers; and general market upheavals), other emerging issues dampened deal activity. Nevertheless, private equity as an asset class continued to show its resiliency as sophisticated dealmakers deployed innovative strategies to keep transaction activity on par with historic pre-pandemic averages. Other key findings from the report include:

  • For the second consecutive year, deal activity trended downward. Sharp decline in deal volume and contracting valuation multiples highlighted challenges across the M&A landscape.
  • Deal makers came to grips with the higher-for-longer interest rate environment. The fallout from early 2023 bank collapses created longer term liquidity concerns and increased capital costs for private investment funds.
  • Increased regulatory activity created uncertainty for both LPs and GPs alike. Between SEC rulings and ESG mandates, fund managers and investors are facing increased scrutiny from regulators.
  • A few bright spots and pockets of opportunity created optimism. The proliferation of carve-out and add-on deals acted as a shock absorber for middle-market deal activity and helped to keep the deal market moving in the face of significant challenges.
  • Private credit advanced their market share of M&A loan funding. With traditional lender sources reducing debt funding, direct lending helped fill financing gaps caused by the pullback in syndicated debt financings.
  • Middle market showed resiliency and overperformed other segments. While the middle market was not totally immune from deal stagnation, the sector’s decline was less acute compared to the broader M&A market.
  • Technology and professional services sectors were focus areas of private equity. Technology, particularly with AI as a growing segment, accounted for nearly one-third of leveraged buyout activity, while professional services garnered increasing interest from private equity investors, particularly in categories such as CPA, wealth management and consulting firms.

“While private equity deal activity was sharply down from its pandemic peak, investors opportunistically deployed capital across a range of verticals, asset classes and transaction types to keep the deal market flowing,” said Scott Moss, Managing Partner, Private Equity and Transaction Advisory Services. “This further demonstrates the industry’s maturity, resilience and general market acuity.”

Looking ahead, as markets begin to anticipate interest rate reductions and recession fears continue to dissipate, there is cautious optimism that 2024 may post upward advancements in deal activity.

Read the full report here.