From Bain’s 2024 Private Equity Report webinar:
• 2023: Fundraising, exits, dealmaking, and capital velocity were strongly affected by rapidly rising interest rates.
• Exits emerged as the most challenging part, starving LPs for distributions and pulling back new allocations. Exits at their lowest level in a decade. 3 main channels: IPO, sponsor-to-sponsor, and sponsor-to-strategic (where only sponsor-to-strategic one is still reasonably active).
• 500 bps increase in interest rates = 0.3x reduction in potential MOIC.
• $438B PE M&A market in 2023, in line with most of the 2010s, but down 60% from 2021.
• Not only has credit been more expensive, but banks have been more sheepish about issuing it.
• Purchase multiples have come down only slightly, as mostly higher quality assets (interest-rate proof, recession-proof, etc.) are still trading.
• Record levels of dry powder; $3.9T. A lot of this capital is >4 years old, which means it must be put to work soon.
• Private equity continues to outperform public markets.
• Last 10 years: EV appreciation has come 50/50 from multiple expansion and revenue growth, where margin expansion has accrued zero value (!). The multiple expansion will come down due to interest rates, so margin expansion (operating leverage, cost cutting, etc.) must offset this going forward.
• Deal-making will come back; it always does and the capital is there. PE is resilient and will innovate and adapt.
• Buy-and-build account of 49% of platforms. Key ingredients: Solid platform (infrastructure, scale, management), whitespace (runway, fragmented), stable market (predictable, low risk), value synergies (top line and cost benefit). The interest rate spike disrupts the 1+1=3 dynamics.
