Monitoring private equity (PE) deal activity provides a window into how market dynamics and price pressures are unfolding. In 2022, PE buyout activity for publicly and privately owned companies diverged (see chart below). This was driven by dislocations between: 1) public and private market valuations, and 2) private company buyers and sellers.
PE managers capitalized on the public equity correction through take-private deals (where they buy a listed company, typically to take advantage of a perceived discount, and take them private). The total deal value for take-privates rose 33% year-over-year in 2022 to a historical high (see chart below).
Take-private activity rose particularly sharply in the tech sector, reflecting public tech stock valuation declines, with deal count up 35% and deal value up 76% year-over-year. (Source: Preqin, as of January 6, 2023.)
In contrast, private buyouts and add-on acquisitions have slowed in both deal count and deal value terms (see chart below).
Private sellers have been reluctant to accept lower valuations, but this is likely to change in 2023. The slowdown in activity is creating pent-up capital demand from these companies at a time when their needs are growing, given higher debt servicing costs.
Private fund managers usually invest the bulk of capital committed to their funds gradually over several years (see chart below). Managers deploying capital over the coming quarters are therefore likely to benefit from favorable lending conditions because of the tightening liquidity backdrop, which ultimately may improve returns when they eventually exit these investments.
To explore how Opto can partner with you to help you take advantage of these market dynamics, please get in touch with us at advisory-services@optoinvest.com.