2024 Mid-Year Outlook

Global M&A Trends in Private Capital

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  • Insight
  • 9 minute read
  • June 25, 2024

In the world of private capital, pressure for dealmaking continues to build, despite economic uncertainty and continuing valuation gaps.

Eric Janson

Eric Janson

Global Private Equity, Real Assets and Sovereign Funds Leader, Partner, PwC United States

The hopes for a market rebound that marked the mood at the start of the year have not yet been matched by dealmaking action as continued macroeconomic uncertainty and divergence on valuations keep M&A in check. But the outlook for private capital in 2024 remains positive. Behind the scenes, there is an uptick in sell-side preparation, and the pressure to do deals continues to grow: according to PitchBook, the global inventory of private equity portfolio companies has now increased to more than 27,000—and almost half of them have been on the books since before 2020, meaning that many are looking for exit opportunities.

One recent development suggesting that the market is heating up is the return of syndicated bank loans after a long absence. Notable megadeals involving bank debt financing include Hewlett Packard Enterprise’s proposed $14bn acquisition of Juniper Networks and GTCR’s acquisition of a majority stake in Worldpay in a $18.5bn transaction that closed in February 2024. 

Three factors that kept the market subdued in the first half of 2024 continue to affect the near-term outlook for private capital:

  • Interest rates: From a macroeconomic perspective, central banks are holding interest rates at a relatively high level for longer than expected. Recent interest rate cuts announced by Switzerland, Sweden, Canada and the European Central Bank may signal that further rate cuts are coming. However, for dealmakers, what’s important in the near-term is that rates are now relatively stable which provides more assurance and visibility than previously.
  • Valuations: There is a continued mismatch between private capital buyers and sellers over valuations. But here too, we see some change in thinking, with the gap starting to narrow in some cases.
  • Elections: Dealmakers are keeping an eye on elections in countries including India, the United Kingdom and the United States, and also on the continued heightening of geopolitical risks in several regions of the world. Historically, transaction volumes tend to dip during election seasons.

“We’re seeing a different approach to deals in this market. To be successful, you need an investment model that has something unique; something that will transform the business.”

Eric Janson,Global Private Equity, Real Assets and Sovereign Funds Leader, Partner, PwC US

Nonetheless, the global buildup of portfolio companies looking to exit, together with an estimated $2tn in debt due in 2024 that will need to be refinanced, means that there is no letup in the pressure for the M&A market to pick up again. If anything, that pressure is getting ever more intense. That, in turn, is changing dealmakers’ priorities.

Private capital continues its strong growth in a shifting landscape

While the US M&A market overall remains lackluster, the story is different in other geographies: markets in India and Japan are both heating up for private capital, for example. Globally, we see several important shifts in the landscape.

First, private capital continues its onward march, taking on an ever-larger share of financing deals. In the first quarter of 2024, private capital accounted for an estimated 24.1% share, up from 20.6% in 2022, according to data from Preqin. Assets under management globally for private capital have been growing at about 8% annually for the past five years to total about $13.3tn in 2023. The largest firms have achieved double-digit growth over the past five years, despite the considerable market turbulence from the COVID-19 pandemic and rising interest rates.

Further evidence of private capital’s growing role came in March 2024, when the CalPERS pension fund, the largest in the United States with assets valued at about $485bn, announced that it had approved a proposal to increase private market allocations from 33% of plan assets to 40%. The fund said ‘strong and ongoing growth in private equity returns’ was behind the decision. A CalPERS study showed that the returns from private equity over five- and ten-year periods also outpaced every other asset class as of the end of 2023. The sizeable allocation increase will make even more funds available for private deals.

Second, the tougher market conditions for private equity are driving consolidation. Limited partners are focusing on where to invest and are tending to favor bigger private market funds with multiple asset classes. Several funds exceeding $1tn in assets under management could emerge in the not-too-distant future, whereas some smaller funds are facing a harder time competing against the economies of scale of larger rivals. For M&A, this bifurcation between mega funds and midsize fund managers is likely to lead to an industry with fewer but larger players. This in turn will influence the scale and nature of M&A activities in the PE sector. Midsize managers may need to adapt to this changing environment, either by specialising in niche areas or by seeking strategic alliances to remain competitive.

Third, new money is coming into the system and may further fuel competitive dynamics. Sovereign wealth funds are a source of fresh funds with some of them starting to invest directly in deals. Additionally, the return of banks into the M&A financing arena after sitting on the sidelines is significant here, as the banks’ cost of capital is traditionally more competitive than that of private players. However, portfolio companies often find it easier to work with one party offering private credit than with a syndicated banking group. Ultimately, the combined effect will make credit more readily available, thereby helping buyers.

In this context, especially considering the continuing misalignment on valuations, dealmakers need to stand out. Gone are the days when private equity players could acquire companies, put in cheap debt and then sell in a rising market. Buyers are now looking for special opportunities for future growth and transformation plans. That mindset change is affecting the entire sector, including the middle market.

Four asset classes are attracting greater attention

Some assets are more attractive than others. For now, four asset classes in particular stand out as most in demand.

The energy transition presents a huge opportunity for private capital players. The sheer scale of investment required makes private capital a key part of the solution. While this theme is a politically sensitive one, most of the major private capital players are viewing the energy transition as inevitable and building strategies around it. Some are looking to lead, while others are positioning themselves as fast followers waiting to see how regulation plays out. Data centers have already been a focus of some deal activity given the big growth in computing power. The emergence of generative AI may also spur further action, given the huge energy resources that it requires. One eye-catching deal that could be a harbinger was announced in May 2024: a global framework agreement between Brookfield’s renewable energy arm and Microsoft to develop more than 10.5 gigawatts of renewable energy capacity.

Private credit is reshaping the M&A landscape for alternative managers, offering them a robust platform for deal execution and diversification. With the influx of permanent capital from insurance and the stability of private credit, alternative managers are well positioned to pursue larger and more complex M&A transactions. This growth signifies a strategic advantage for alternative managers, enabling them to leverage their expertise for higher returns and strategic investments in the competitive M&A arena.

Infrastructure is an increasingly important play for both geopolitical and economic reasons, as companies in the United States and Europe rethink supply chains and countries including India ramp up their infrastructure investments. While governments in the past have tended to take the lead in national infrastructure investment, tighter budgets mean that private credit may become a bigger player in this very long-term market. For example, in January 2024, BlackRock agreed to acquire Global Infrastructure Partners, an infrastructure manager with more than $100bn in assets under management, with the goal of creating a leading infrastructure private markets investment platform. BlackRock said infrastructure is already a $1tn market today and ‘is forecast to be one of the fastest growing segments of private markets in years ahead.’

Private capital offers a compelling proposition for insurers: we can invest your premiums and give you a better return. For their part, by acquiring insurance assets, PE firms gain direct access to manage the large pools of permanent capital held by insurance companies. This capital in turn guarantees assets under management and the associated management fees. The sector has drawn in a number of the biggest players, including Apollo, Blackstone, Brookfield, CVC, KKR and others. Among recent deals, KKR finalized its acquisition of the remaining 37% stake in Global Atlantic in January 2024, and in May 2024 Brookfield completed its acquisition of American Equity Investment Life Holding Company—deals that were both announced in 2023.

Spotlight on opening private capital to retail investors

  • Traditionally, private capital firms and retail investors have not mixed. While small investors have long been interested in accessing private capital deals, for the most part private capital is a world that is closed off to all individuals except for those with very high net worth. At best, smaller investors can access private deals only through closed-end or exchange-traded funds.
  • That is now changing. Some of the bigger private capital players are looking at the large pool of retail savings—an estimated $34tn in the United States alone—and seeking ways to tap directly into them. Expanding beyond their base of institutions such as pension funds serves both private capital players and retail investors hoping to achieve better returns than they can find on stock or bond markets.
  • In 2023 Blackstone launched private debt funds in both the United States and Europe. In January 2024, the firm raised approximately $1.3bn for a private equity fund that is tailored to individual investors. Other private capital players, including Apollo, KKR, Carlyle and Brookfield, have launched similar funds. Blackrock has also launched a retail private credit fund and acquired a private debt manager, Kreos Capital, as it seeks to capture more of the growing private credit investment market.
  • Offering funds to individuals requires overcoming regulatory issues. And private capital players also need to find ways to control redemptions that could potentially destabilise funds if retail investors seek to withdraw rapidly. Still, the retail-focused efforts to date are likely to be only the start of an ongoing trend: Blackstone has said that retail assets under management could rise from $200bn to $500bn, while KKR has said it expects individual investors will eventually account for between 30% and 50% of new capital raised, up from 10% to 20% currently. For its part, Apollo has said it aims to raise $50bn from retail channels through 2026 for funds ranging from AAA to real estate and corporate debt funds.

M&A outlook for private capital in the second half of 2024

Private capital is poised to move rapidly once the long-hoped-for upturn in M&A begins in earnest. The sheer volume of deals that need to be done—and the enormity of their financial clout—means that, when the floodgates finally open, private market players will be quick to ride the wave. Dealmakers are having to work harder in the current climate. But nothing succeeds like success, and a return to more vibrant M&A conditions will consolidate the sector and its leading players in their role as the new forces to be reckoned with.

Our commentary on private capital trends is based on data from industry-recognised sources and our own independent research. Specifically, data on the number of private equity portfolio companies at 31 December 2023 was sourced from PitchBook. Corporate debt maturity data as of 1 January 2024 is based on S&P Global Ratings Credit Research & Insights. Private capital financing data as of 31 March 2024 and global assets under management data as of 31 March 2024 are based on information from Preqin. The potential pool of retail savings as of 31 December 2023 is based on data from The Cerulli Report on U.S. Alternative Investments 2023 by Cerulli Associates. Certain adjustments to source data have been made to align with PwC’s industry mapping. All dollar amounts are in US dollars.

Eric Janson is PwC’s global private equity, real assets and sovereign funds leader. He is a partner with PwC US. Mairi McInnes is a director with PwC UK. Andrea Grogan is a senior manager with PwC US.

The authors would like to thank the following colleagues for their contributions: David Brown, Kevin Desai, Hugh Lloyd Ellis, Steve Roberts and Richard Rollinshaw.

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Want to know the M&A trends we expected in Private Capital at the beginning of 2024?

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