After two outlier years and a subsequent year of macroeconomic challenges, private equity appears to be returning to historic norms
February 13, 2023 – Private equity has seen it all in the last three years: from the global market shutdown in 2020, to the rebound that pushed deal activity to record highs in 2021, and then unprecedented macroeconomic headwinds in 2022. Cherry Bekaert’s Private Equity 2022 Year in Review report examines the major trends in private equity of the last year, current challenges facing the market, and what it may mean for private equity dealmaking in the months to come.
Although unfavorable economic conditions and continued global tensions may dampen enthusiasm for dealmaking, investors remain positioned to take advantage of opportunities in the new year.
Here are some of the key findings from Cherry Bekaert:
- Despite cautious approach, M&A activity remains above the pre-pandemic levels of 2019. Shifting economic conditions have resulted in a more tentative investment environment, but overall private equity activity suggests a return to historical averages.
- The technology industry’s golden era experiences a downward shift. Higher discount rates and contracting multiples contributed to sharp declines in valuations in the technology industry. With a 25 percent pullback in year-over-year deal volume, the segment experienced a dramatic retreat.
- Healthcare continued to show resiliency. Long touted as a recession-proof segment, the healthcare M&A sector continued to show growth well into 2022. Overall private equity investments in healthcare finished well ahead of the previous highwater mark set in 2020.
- The industrial industry returned as a bright spot for deals. Smart manufacturing and digital transformation contributed to heightened investor interest. The industry continues to benefit from fiscal stimulus programs and appears well positioned to realize growth in 2023.
- Portfolio company optimization and private credit find strength, while carve-outs present areas of opportunity. In the face of economic headwinds, investors are finding creative ways of structuring deals and optimizing portfolio companies. Trends include the rise of private credit and an increase in corporate divestitures/carve-outs.
- There’s no quick fix; the resilience of M&A and private equity will be tested in the year ahead. Dealmaking will continue ahead of historical averages but may be comparatively different than the last three years. High interest rates, uncertain economic conditions and prevailing macro headwinds may suppress activity and test segment stability.
“A maturing private equity industry positioned fund managers to be better equipped to respond to economic threats and opportunities,” said Scott Moss, Managing Partner for Private Equity and Transaction Advisory Services at Cherry Bekaert. “The continued availability of record levels of dry powder coupled with shrinking valuations could create buying opportunities in the year ahead.”
