The headwinds facing the private equity M&A market over the past 18 months or so have been well-publicised. While there remains significant dry powder to deploy by private equity firms and credit funds alike, it has been more difficult to execute transactions in the current environment.
Valuation gaps remain a challenge, but we have seen innovative transaction structures used both to execute buy-outs and deliver returns to LPs. We have seen a significant uptick in public to private transactions executed by private equity sponsors, and this remains an opportunity for well-advised sponsors to generate value given pricing in the public markets. Similarly, corporate carve outs and minority investments have been a key way in which sponsors have broadened their range of targets to deploy capital. In geographical terms, Scandinavia, Belgium, the Netherlands and the DACH region have been particularly active as sponsors widen their search for value creation and growth opportunities.
Secondary transactions have been used for a range of purposes including returning value to LPs, and to provide longer hold periods and/or additional funding for strong assets held by funds coming towards the end of their deployment cycle or to avoid the current difficulties with deal pricing. NAV facilities have also been increasingly used to provide capital for portfolio companies and to return amounts to LPs.
Other areas of focus for sponsors include AI, both as an investment opportunity, and a tool for managing investments and regulatory regimes across portfolios. The regulation of AI will be an interesting development over the coming months.
In the challenging macroeconomic circumstances it has been encouraging to see the ongoing innovation and resilience of the private capital industry. We thank our clients for their support over the past 12 months, and look forward to working with them during the remainder of 2024 and beyond.
