Evening Brief – 11.27.23
PE – Bottom to Boom
The private equity market has bottomed, and dealmakers in the U.S. predict a new boom cycle beginning in 2024, according to proprietary research from BluWave, a Nashville-based network that connects private equity firms with service providers and consultants.
The private equity industry is set to enter a “traditional” five-to-eight-year market cycle during the second half of 2024. This is consistent with the belief that the Federal Reserve’s monetary policy will resemble previous pre-boom periods.
“We believe private equity has called a market bottom and is moving forward on M&A and value creation projects, despite some lingering market uncertainty,” BluWave CEO and founder Sean Mooney said. “As economic fundamentals improve and dealmakers are increasingly under pressure to put dry powder to work, 2024 will usher in a new cycle of economic activity – which will continue for years, barring external shocks.”
According to the research, private equity transactions completed in 2023 and the first half of 2024 will generate the highest returns throughout the next five to eight-year deal cycle.
BluWave also anticipated that a rise in sponsor-backed deals will cause exits to ramp up from their current sluggish pace. LPs are putting pressure on GPs to deliver returns, which has led to GPs selling assets at a loss in order to exit more quickly. They believe that lower-quality businesses will shift to more usual pre-2022 peak cycle prices.
While BluWave is relying on AI as well in matching firms to service providers, they found that for dealmakers AI is viewed as a tactic rather than a distinct strategy. The team discovered that the AI ‘boom’ is set to expand with the industry classifying and leveraging the technology as a value-creating efficiency tool that can lower costs and improve decision-making.
“As dealmakers enter this new cycle of growth in 2024, we expect to see increased exit momentum, greater reliance on data and analytics, and a transition from the enchantment of (artificial intelligence) AI possibilities to actionable focus on AI’s practical abilities to contribute to overarching strategic objectives,” Mooney said.
The rise of AI may increase the demand for data scientists at both private equity firms and their portfolio companies. BluWave discovered that some organizations have already added qualified people in this field, and that more management firms will follow suit.
BluWave is used as a matchmaker by over 500 private equity funds and thousands of portfolio companies to advance due diligence and value development projects. The company’s predictions are based on proprietary data from projects for which it provides help to private equity firms and their portfolio companies.