Private Equity Resurgence Gathers Steam
A new Bain & Company report indicates that a resurgence in private equity is underway, with a rebound in dealmaking lifting buyouts and exits to the second-highest values on record. The report suggests the industry has reached an inflection point, where intensified competition challenges funds to deliver differentiated strategies. Bain argues that firms must enhance value creation to generate high performance in the new era.
- The recent downturn saw global buyout deal value fall by 37% to $438 billion in 2023, the lowest total since 2016, while exit value dropped 44%. The current resurgence is set against the backdrop of this significant slowdown, which was primarily caused by the fastest increase in interest rates since the 1980s. - A key factor in the previous slowdown was the increased cost of borrowing for leveraged buyouts (LBOs), a core private equity strategy. Higher rates also created a valuation gap between what buyers were willing to pay and what sellers expected to receive, stalling deal activity. - Despite the challenging environment, the industry raised $1.2 trillion in new capital in 2023, though fundraising was highly concentrated. Just 20 large firms accounted for more than half of all buyout capital raised, creating a "have and have-not" dynamic in the market. - Firms are currently sitting on a record amount of uninvested capital, often called "dry powder," with buyout funds alone holding $1.2 trillion. About 26% of this capital is four years or older, increasing pressure on firms to deploy it into new investments. - Take-private deals, where a public company is purchased and delisted from the stock exchange, were a major feature of the 2023 deal landscape. Notable examples include the acquisition of Toshiba by Japan Industrial Partners, Qualtrics by Silver Lake and CPP Investment Board, and Syneos Health in a $7.1 billion deal. - With cheap debt less available, the focus for generating returns is shifting from financial leverage to operational value creation. This involves hands-on improvements to a portfolio company's profitability and organic growth through measures like pricing adjustments and enhancing salesforce effectiveness. - The market for "secondaries" has grown significantly, providing a crucial source of liquidity. This market allows investors to sell their existing stakes in private equity funds to other buyers, and fundraising for dedicated secondary funds surged 92% in 2023.
