What’s in store for private equity and M&A sectors in 2024?

Autor James Brewster
April 9, 2024

Predicting the future of private equity (PE) and mergers and acquisitions (M&A) activity involves considering various factors, including economic conditions, regulatory environment, industry trends and investor sentiment.

At our inaugural sector roundtable in Birmingham last month, we focused on M&A and PE outlook for 2024.

You can read the key takeaways from our discussion below.

What are the Expectations for private equity and M&A activity in the coming year?

  • Looking back first to 2023, M&A volumes and values were down by 20-30% compared to 2022.
  • Rising interest rates, high inflation, low GDP growth and reduced consumer confidence are all contributing factors within the sector.
  • Larger banks are not as active so that creates opportunities for other lenders in that space.
  • In 2024, the overall market sentiment will remain relatively subdued reflecting weak UK GDP growth forecasts.
  • The interest rates have likely reached their peak, yet considerable uncertainty remains. While some deals are proceeding, many transactions are being deferred or delayed.
  • SMEs have significant oppportunities in this market as mid-sized businesses operate in a dynamic environment where external funding is continually sought.
  • Whilst UK GDP likely to remain depressed, inflation is normalising and there is scope for optimism.
  • There is available PE capital ready for deployment, and we anticipate a rise in transaction volumes towards the end of the year, along with more PE exits following the elections. However, opinions may differ on this perspective.
  • We are still seeing lots of M&A propositions, but it is challenging to find the right opportunities.

For those who act for PE, what are you hearing from your clients?

  • It is worthwhile taking account of the anomalies of 2021-2023 and the unprecedented, heightened demand for deals to be done post-pandemic. 2019 could serve as a more suitable benchmark for assessing a „normal“ market environment.
  • Whilst the PE market was slower last year, we are seeing more bolt-ons in the UK and internationally, particularly in Ireland, Germany and France.
  • There were very few PE exits last year and whilst there was talk of these for 2024, it is most likely they will hold on to 2025. Businesses are not under pressure to recycle funds so will most likely wait another year and use bolt-ons in the interim to add value along the journey.
  • Legal advisors are seeing challenges in getting deals over the line, having to offer advice that is not just corporate.

How do we foresee economic conditions impacting deal flow?

  • We need to consider the broader global landscape – both funders and borrowers prefer stability and certainty. When the environment is stable, planning becomes easier, and there is greater confidence in anticipated outcomes.
  • For 2024, we still see a lot of uncertainty with the US and UK elections and conflicts in Ukraine and the Middle East.
  • Inflation is slowing and interest rates are peaking, whilst consumer prices are still a quarter higher than they were 3 years ago.
  • The covenant headroom is declining for a number of borrowers, who express concerns regarding elevated energy and input expenses, talent availability, staff costs, access to capital, and the stability of the operating environment.
  • However, inflation is trending towards more normal levels and most surveys are showing improving business and consumer sentiment, which should elicit confidence.
  • Despite the ongoing challenges, numerous opportunities persist. The crucial factor lies in identifying and supporting the most promising ones, as there are still viable deals to pursue.
  • There is still high demand for change of ownership transactions, particularly within ‘owner-manager’ management teams.

What are we experiencing in terms of the economy Influence on deal outlook?

  • The market remains uncertain, yet businesses committed to pursuing deals will find a pathway forward.
  • Certain sectors are poised for growth: for instance, technology-enabled business services are consolidating, while consumer-focused businesses may face challenges.
  • As the market is cyclical, we can make comparisons to 2008/9 and 2013-15.
  • Some owner-managed businesses (OMBs) may seek an exit, making the private equity route a logical choice to pursue.
  • We are seeing more bolt-ons and buy-and-build strategies.
  • Delays in completing deals, including even bolt-on acquisitions, are becoming increasingly prevalent, leading to some transactions ultimately falling through.
  • Private equity-backed businesses may express interest in investing, but achieving a perfect fit is essential to secure the investments.
  • Extensions to terms for finance deals done 2-3 years ago could also be causing delays in new deals getting done.

Overall, the landscape for mergers and acquisitions and private equity in 2024 presents a nuanced picture shaped by economic, regulatory and market dynamics.

With careful navigation and adaptive strategies, stakeholders can capitalize on emerging trends, sector-specific opportunities and evolving investor preferences to drive growth and create value in the dynamic M&A and PE landscape of 2024.