PE May Be Bottoming, but Momentum Modest — Evening Brief – 06.06.24
The two-year private equity dealmaking slump that began in 2021 following the post-pandemic boom may be coming to an end, according to Bain & Company; however, momentum for a durable comeback remains difficult.
The firm stated that, while private equity activity seems to have “arrested its freefall,” the shift remains modest by historical standards, particularly given the $3.9 trillion in uncommitted or uncalled dry powder now sitting in general partners’ assets.
Bain & Company’s Searching for Momentum: Private Equity Midyear Report 2024 said that prospects for revival remain “tentative”, with momentum “still scarce.” Private equity deal count declined 4% through May 15, 2024, compared with the same time in 2023, marking a flattening of the post-2021 declining trend.
Global buyout deal value is expected to reach $521 billion this year, up 18% from 2023, but the increase has been driven by larger deal sizes rather than more individual deal-making.
Exits are now tracking flat on an annualized basis, according to Bain & Co, and are expected to increase by 17% year on year to $361 billion by the end of 2024. Yet, that would still make this year the second-worst for exit values since 2016.
The exit crunch has had a long-term impact on fundraising; Bain & Company stated that limited partners are now demanding for a rise in existing low levels of distributed-to-paid-in capital (DPI), which necessarily means less capital available for future fund commitments.
The industry raised $422 billion through the middle of May, compared with $438 billion in the same period last year. The trend indicates that fundraising will reach an annualized $1.1 trillion in 2024, a 15% decrease from the previous year, according to Bain.
Buyout funds are ruling the fundraising landscape, with $199 billion raised as of May 15, and the category is expected to reach $531 billion by year-end, a 6% increase over the total amount raised in 2023.
“With the year having got off to a better start we’ve been cautiously optimistic about 2024’s outlook,” said Rebecca Burack, global head of Bain & Co’s private equity practice.
“We see better prospects emerging. But the challenges facing the industry, for example around interest rates, value creation, and especially the exit logjam and the need to respond to pressure to get capital back to limited partners, mean this year will also be an important inflection point in other ways, too, as GPs look to get the wheel spinning once again.”