The two-year crisis in the private equity sector is coming to an end, and most funds expect an improvement in the situation in 2024, according to the latest report from consulting firm Bain & Company. The market is negatively affected by persistently high interest rates and geopolitical uncertainty.
As shown by a Bain & Company survey conducted among 1,400 representatives of private equity funds worldwide, more than half of them (57 percent) expect a market recovery in the third or fourth quarter of 2024. However, nearly 40 percent believe that the rebound will not occur until 2025 or later.
– The first half of this year has not been easy for the private equity market. There is still some stagnation, and we see a limited number of transactions. Many funds are holding back on investment decisions due to the uncertain macroeconomic environment and persistent geopolitical risks – says Paweł Szreder, partner at Bain & Company.
Bain & Company experts predict that the total number of acquisitions made by PE funds worldwide in 2024 will likely remain at a similar level to 2023, amounting to about 2,500. The total value of transactions may increase by 18 percent year-on-year to around $521 billion, mainly due to individual large acquisitions in the US market.
– The slowdown in the private equity market is visible in both Europe and Asia, although it results from different factors. Lower-than-expected economic growth in Western Europe discourages investors, while the situation in Asia is influenced by strained Sino-American relations – says Paweł Szreder. – Against this backdrop, Poland may attract some interest from global capital due to improved macroeconomic conditions, the prospect of strong economic growth, and consolidation opportunities in many sectors.
Bain & Company experts indicate that many private equity funds are under increasing pressure from their investors, who expect exits from long-term investments and capital returns. However, the transaction market stagnation and declining valuations in many sectors make it difficult for funds to exit investments with an attractive rate of return. According to the report, both the total value and the number of assets sold by funds worldwide may reach one of the lowest levels in the last decade this year.
The difficult situation with asset sales also negatively impacts funds’ ability to raise new capital for investments. According to Bain & Company estimates, the value of capital raised for new investments in 2024 will decrease by about 15 percent to $1.1 trillion.
– Funds should understand what is important to their investors in today’s challenging conditions and then translate these insights into strategy adjustments. This primarily involves a more aggressive approach to building the value of portfolio companies. In an environment of higher interest rates and stagnation or even decline in transaction multiples, the ability to quickly improve profitability and revenue growth will determine satisfactory investment returns – says Paweł Szreder.
