Horizons Issue Q1 2024
Horizons Issue Q1 2024
As expected by deal advisers, global mid-market activity declined in the second half of 2023 but only to a level that was broadly in line with each half of 2021 (first chart below) and still some way ahead of pre-COVID levels (second chart below). Total deal volume was down by around 16% on the first half of the year with trade buyers holding up better (c8% decline) compared to private equity (30% decline). Given the surge of deal activity in the wake of COVID that doesn’t feel too bad an outcome and 2022 stands out as an exceptional year.
The decline in private equity led acquisitions is not surprising given rising interest rates and the impact that has on returns as the impact of inflation on businesses. In reality there will have been more and a number of the trade acquirers would have been private equity backed and we have seen more bolt-on than platform activity by private equity in the current market conditions. Despite the decline, private equity led deals still accounted for over 30% of all deals which remains much higher than pre-COVID. With respect of the pricing of deals, we believe that multiples have compressed but it varies by sector and type of business. The rally in global capital markets in 2023 is a helpful factor for valuations. As fiscal policy succeeds in bringing global inflation under control and avoiding the need for further interest rate rises that may also start to underpin valuations.
The decline in private equity led acquisitions is not surprising given rising interest rates and the impact that has on returns as the impact of inflation on businesses. In reality there will have been more and a number of the trade acquirers would have been private equity backed and we have seen more bolt-on than platform activity by private equity in the current market conditions. Despite the decline, private equity led deals still accounted for over 30% of all deals which remains much higher than pre-COVID. With respect of the pricing of deals, we believe that multiples have compressed but it varies by sector and type of business. The rally in global capital markets in 2023 is a helpful factor for valuations. As fiscal policy succeeds in bringing global inflation under control and avoiding the need for further interest rate rises that may also start to underpin valuations.