Private Equity: The clock is ticking on uninvested dry powder
These elevated rates, coupled with continued macro-economic and geopolitical pressures, have had a significant impact on leveraged buy out structures and the PE deals market in general.
Moreover, with vendors of high-quality, high-growth companies reluctant to sell or raise funds at discounted valuations, PE houses and other financial sponsors have had to be increasingly prudent about when to transact and which assets to target.
Indeed, the growing disconnect between investor and seller valuation expectations has had a dramatic impact on deal and funding activity, with deal values declining by c70 per cent in 2023 according to Mergermarket data. However, as bleak as the headlines were for 2023, there is a cautious optimism that conditions for funding and dealmaking will improve markedly in the year ahead.
Despite continuing to hold interest rates steady for the first half of 2024, the expectation for Fed, ECB, and BoE cuts in the latter part of the year remains, especially in the context of looming elections on both sides of the Pond.
Even in the scenario where rates remain at their current elevated levels over the short to medium term, as many economists predict, the seemingly clearer picture for the years ahead should give Private Equity (PE) backers more comfort when identifying and pricing deals, and ultimately bridging the gap between the aforementioned price expectations.
Another factor likely to drive deal activity in 2024 is the growing pressure on PE houses and investment managers to transact. Uninvested ‘dry powder‘ is at record levels, as are the number and value of assets in portfolios. The clock is ticking and deals, on both sides of the table, will need to be accelerated.
We at Evelyn Partners can certainly pay testament to the above appetite and desire investors to transact. Local Private Equity firms such as BGF, Foresight and LDC are increasingly active and keen to do deals in Cambridge and the wider region.
Cooling interest rates coupled with more realistic and palatable price expectations on both sides of the fence should mean a better year for dealmaking in 2024 and beyond.
At Evelyn Partners our professional services colleagues have a depth of knowledge that can scale to support businesses at any stage of their journey.
Coupled with access to the wider business that has niche expertise means that we are in a strong position to help business owners and C-Suite executives to execute their long-term strategy. We would welcome you reaching out to discuss how we can advise you.
• Feel free to email David – david.ball@evelyn.com
