5 current trends in private equity (and how searchers can take advantage)
by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA
U.S. PE Deal Activity 2019 – YTD 2023
- Deal flow in the US has softened and Q3 2023 was the slowest quarter since the start of the pandemic
- However, 2023 is still shaping out to be a solid year with activity beating pre-pandemic levels
- The decline in aggregate deal value shows a preference for smaller acquisitions rather than mega-deals as financing has been challenging
Top U.S. PE Deals in 2023 by Deal Size
- The buyout of Splunk by Cisco Systems in September 2023 for $28 billion is the largest PE-related deal this year. Hellman & Friedman spent $1.38 billion to acquire a small stake in Splunk in March 2022
- October had just one megadeal from Vista Equity Partners in its take-private of EngageSmart for $4 billion
- The majority of large deals in 2023 have been “Public to Private” as PE investors see an opportunity to swoop in with lower share prices compared to historical values
PE Dry Powder and Fundraising Trends
- There is over $2.1 trillion in dry powder for PE investors globally but the total has been holding steady in recent months as fundraising has slowed
Percentage of Fundraising Amount by Asset Class, ###-###-#### Present
- Private Debt, as an asset class, has steadily increased since the pandemic
- 17% (~$167bn) of global fundraising was allocated to private debt investments in 2023 so far. A record high since 2015
US Leveraged Loan Issuance
- Leveraged loan issuance ($573bn) in the United States is 22% lower YoY through October 2023
- Lending activity is down sharply due to a sharp drop in PE and M&A deals, higher cost of borrowing due to interest rate hikes, and economic uncertainty
- Banks have also been shying away from funding large leveraged transactions
Bonus Section
- Interest rates appear to be peaking as the Fed agreed to hold rates steady at###-###-#### % in the most recent meeting
- However, investors are expecting ‘higher-for-longer’ and this could put pressure on the drivers of private equity returns
- PE exit activity is showing signs of a gradual recovery as the stock markets have been rallying this year
- There has been significant consolidation in the Financial Services space in###-###-#### These Asset Management M&A-related deals often involves a private equity firm. Some examples below:
- TPG buyout of Angelo Gordon
- Mercer Advisors acquired Singth Advisory (Mercer is backed by Oak Hill Capital and Genstar Capital)
- PGIM acquisition of Deerpath Capital
- Warburg Pincus and Centerbridge investing in regional banks (Banc of California and PacWest)
- GTCR acquired 50% of Deposit Solutions
- KKR invests in Catalio Capital Management
- Charlesbank invests in Petra Funds Group
- GCM Grosvenor invests in Excolere Equity Partners