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As companies navigate economic hurdles and grapple with persistent valuation gaps, deal pressure in private capital is intensifying.
The outlook for global private (PC) in 2024 remains promising, although the expected market rebound has yet to fully materialise. Macroeconomic uncertainty and valuation mismatches continue to dampen M&A activity. Behind the scenes, however, sell-side preparations are gaining momentum and the pressure to close deals is increasing. According to PitchBook, the global inventory of private equity portfolio companies has now surpassed 27,000, with nearly half held since before 2020 – signalling a growing demand for exit opportunities. Read on for PwC’s latest insights into M&A trends and developments in the private capital space.
One sign that the market is picking up is the return of syndicated bank loans, which had been largely absent for some time. Megadeals (transactions worth more than US$5bn) backed by bank debt underline this trend, such as Hewlett Packard Enterprise’s proposed US$14bn acquisition of Juniper Networks and GTCR’s US$18.5bn purchase of a majority stake in Worldpay.
However, three factors that kept the private capital market subdued in the first half of 2024 are still shaping the near-term outlook. First, central banks are keeping interest rates higher than expected. But recent cuts in Switzerland, Sweden, Canada, and the European Union suggest that further reductions may be on the horizon, and the key takeaway for dealmakers is that interest rates have now stabilised, providing a greater sense of certainty and predictability.
Second, a divergence in valuation expectations between buyers and sellers of private capital persists. However, this gap is beginning to narrow and there are signs of a shift in perspective on both sides. Finally, the US elections and rising geopolitical risks in various regions are also being closely monitored by dealmakers. Historically, transaction volumes tend to decline during election periods, adding another layer of complexity to the market outlook.
Despite these challenges, the global pressure on the M&A market is intensifying, driven by a growing number of portfolio companies seeking exits and an estimated US$2tn in debt due for refinancing in 2024. This mounting pressure is reshaping the priorities of dealmakers.
Key themes to watch in private capital
As private capital expands its influence in the global financial industry, several key trends are emerging that will shape the future of the sector, including its growth trajectory, the increasing influence of larger funds, and the strategic focus on specific asset classes.
Private capital thrives in a dynamic global landscape
Private capital is experiencing significant growth globally, particularly in markets such as India and Japan, even as the broader US M&A market remains sluggish. The sector is steadily increasing its share of financing deals. In the first quarter of 2024, private capital accounted for an estimated 24.1% share of deals, up from 20.6% in 2022, according to Preqin data. Global private capital assets under management have grown at around 8% annually for the past five years to a total of about US$13.3tn in 2023. Larger private equity firms are rapidly expanding, benefiting from economies of scale, which is leading to industry consolidation and the emergence of fewer, more powerful players.
This consolidation is driven by tougher market conditions, with limited partners increasingly favouring larger funds that offer diverse asset classes. At the same time, new sources of capital, such as sovereign wealth funds and banks returning to M&A financing, are intensifying competition. These dynamics are pushing private equity firms to adapt by seeking unique growth opportunities and focusing on strategic transformation plans, particularly as valuation gaps persist. The sector is moving away from the traditional model of leveraging cheap debt to one where identifying and nurturing future growth opportunities is paramount – a change that affects all players, including those in the middle market.
Emerging asset classes attract investor interest
Certain asset classes and topics are more attractive to private investors at the moment, and four stand out.
Energy transition: The shift to renewable energy is creating significant opportunities, with private capital playing a crucial role due to the vast investment required. Major players are either leading this transition or waiting to see how regulations evolve. The energy needs of technologies such as generative AI are further driving interest in this area. A notable deal in May 2024 may signal future activity: Brookfield’s renewable energy arm and Microsoft agreed to develop more than 10.5 gigawatts of renewable energy capacity.
Private credit platforms: Private credit is becoming a vital tool for alternative managers, enabling them to execute larger and more complex M&A deals. The influx of permanent, long-term capital from insurance companies and the stability of private credit enhance the strategic position of these managers in the competitive M&A landscape.
Infrastructure: Investment in infrastructure is gaining importance due to geopolitical and economic factors, with private capital stepping in as government budgets tighten. The acquisition of major infrastructure management firms is positioning private capital as a key player in the sector’s future growth. For example, in January 2024, BlackRock agreed to acquire Global Infrastructure Partners, an infrastructure manager with more than US$100bn in assets under management, to create a leading infrastructure private markets investment platform.
Insurance: Investing in private capital is increasingly attractive to insurers because it offers a better return on their premiums. On the other hand, by acquiring insurance assets, private equity firms gain access to substantial, stable capital that secures assets under management and related fees. This has led to significant deals involving some of the industry’s largest players, including Apollo, Blackstone, Brookfield, CVC, and KKR.
Spotlight on unlocking private capital to retail investors
Private capital is becoming increasingly accessible to retail investors, a group that was traditionally excluded from these opportunities. Leading firms such as Blackstone, Apollo, and KKR are launching funds specifically tailored for individual investors, aiming to tap into the US$34tn pool of US retail savings. Blackstone, for instance, raised US$1.3bn for a retail-focused private equity fund in early 2024 and expects its retail assets under management to grow from US$200bn to US$500bn. Apollo intends to raise US$50bn from retail channels by 2026 for funds ranging from AAA to real estate and corporate debt funds. While this expansion offers retail investors the potential for higher returns compared to traditional markets, it also presents challenges, such as navigating regulatory requirements and managing redemption risk. Despite these hurdles, this shift signals a significant trend towards greater retail participation in private capital markets, with firms such as KKR predicting that individual investors could soon account for 30 to 50% of new capital raised, up from 10 to 20% today.
"The exit dilemma has emerged as the most pressing problem, as LPs famish for distributions pull back new allocations from all but the largest, most reliable funds. The long-term outlook remains sound, but breaking the logjam will require more robust approaches to value creation and rapid innovation in liquidity solutions."
Sascha Beer,Partner, Corporate Finance / M&A Leader, PwC SwitzerlandM&A outlook for private capital in the second half of 2024
The Swiss private equity (PE) market has grown steadily in recent years, with investments across a wide range of industries and company sizes. The diversity of the market is supported by the flexibility of Swiss law, which allows PE sponsors to acquire both majority and minority stakes, the latter often protected by special shareholder agreements. However, current global issues are particularly relevant in a smaller market such as Switzerland, contributing to uncertainty in the short-term outlook. Nevertheless, there is optimism for 2025, with several potential exits on the horizon.
M&A industry trends in Switzerland
Learn about the key trends driving M&A activity in Switzerland
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Sascha Beer