Navigating the Next Wave of Private Equity (PE) Group Exits
PE groups are sitting on 28,000 unsold companies worth more than $3tn. Deal activity is expected to increase in 2024. How do you ensure you achieve the expected returns?
MARKET DYNAMICS
Longer hold periods attributable to higher interest rates and lower achievable valuations have created a significant transaction backlog for private equity groups. This backlog is expected to drive increased deal activity in 2024.
The average hold period for buyouts in North American PE funds hit 7.1 years in 2023, the industry's longest since 2000. Contributing to this have been higher interest rates which, with inflation still above target levels, the Fed is reluctant to cut too quickly.
At the same time, strong fundraising in recent years has left PE groups with plenty of dry powder to put to work. Sponsors have been doing so with bolt-on acquisitions where financing is feasible and opportunistic carve-outs where they can take advantage of corporates' renewed focus on core competencies.
These market dynamics resulted in tempered portco valuations and fewer exits in 2023 but signal a potential increase in transaction activity in 2024 as PE groups harvest gains.
THE CRITICAL ROLE OF INTEGRATION/SEPARATION MANAGEMENT
In the coming wave of PE group transaction activity, differentiated strategies and investment themes will often win the day and potentially offer the highest returns. Successful transaction planning and post- transaction integration/ separation will be key to realizing targeted returns.
ELEMENTS OF SUCCESSFUL INTEGRATION/SEPARATION
Successful companies will anticipate challenges, drive toward completion, and establish robust governance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.