New York, January 30, 2025 – SPS sponsored a webinar on Thursday, January 30th titled Eyes on 2025: What PE Dealmakers Need to Know to Stay Ahead, moderated by David Toll of Private Equity Career Week.
To view a recording of the full webinar, click here. To download the presentation slides, click here.
Managing Director of Product Strategy at SPS Brenden Gobell, Chris Macios of Guggenheim Securities, Jay Mirostaw of Evercore, and Carlos A. Soto of H.I.G. Capital led a 75-minute discussion on emerging trends and opportunities to look out for as we enter the new year.
Analyzing total PE and M&A deal volume, 2024 deal activity was essentially flat when compared to a 20% decline in 2023. The trend that began in 2021 of PE representing a larger share of overall M&A activity compared to strategic buyers is now four years strong, with PE activity representing 54% of overall deal volume last year, compared to 55% in 2023.
Examining quarterly closed deal activity reveals a dramatic swing in deal activity over the past six years. 2019 was stable, but there was a massive drop in Q2 2020 due to Covid. The rebound was aggressive and in just 18 months, a new record high was set in Q4 2021. Despite some factors such as persistent headwinds from interest rates, extended hold periods, and stubborn valuations, 2024 deal activity is 7% above our baseline year of 2019, and is likely to increase when more data comes in from Q4. Furthermore, the first 3 quarters of last year – also an election year – were above the same periods in ’23.
Comparing sector activity over the last three years, split between strategics and private equity, the top three active sectors consisted of Industrials, Tech, and Business Services. All three sectors were up last year, with Tech increasing the most at 7% YoY. Private Equity has held its lead in all three of these sectors, plus Healthcare and Financial Services is deadlocked at 50/50, with the remaining sectors led by strategics.
The trend of rollup strategies or buy-and-build has been covered extensively by industry media for years now. Since 2016, the ratio of add-ons to buyouts has continuously grown for 7 straight years, from 1.4 all the way up to 2.5 in 2023. Last year posted the same 2.5, although this could still change once year-end data is finalized. Setting the ratio aside for a moment, it’s worth noting the widening spread between add-on and buyout activity.
Compared to our trusty 2019 baseline, add-on activity was 23% higher last year while buyouts were 12% lower. A likely contributor to this divergence is larger funds moving down market in search of deals and scooping up companies as add-ons that would typically be new platforms for middle market and lower middle market funds.
Now looking solely at PE activity and analyzing how volume by Deal Types varies across Sectors. For context, SPS tracks four deal types: add-ons, buyouts, financings – which is how SPS tags non-change of control transactions, and recaps. Business Services, Healthcare, and Financial Services saw the greatest add-on activity relative to other deal types in 2024.
Meanwhile, financings continued to be an important investment strategy – outpacing buyouts – in Tech, Healthcare and Financial Services. That said, add-ons comprise the biggest share, if not an outright majority, amongst transaction types across all sectors in 2024 and are the key contributor behind PE activity representing a higher share vs. corporate buyers of overall M&A activity for the last 3 years.
Examining PE pipeline data, the median number of deals PE firms saw (or logged to be precise) was 143 in Q4 of last year, notably down from the prior quarter, which is no surprise given how few deals are typically brought to market in the final quarter of the year. Case in point, over the past decade, Q4 was the low for all except two years, and one of those outliers was 2020. While these numbers can’t speak for quality, it does seem like pretty consistent deal flow numbers purely from the perspective of volume, with 2024 totals slightly above 2023.
Gobell also shared a teaser of the upcoming PE Harvest Report. According to the report, there are over 8000 platforms acquired by PE firms between 2014-2021, that are still being held and may trade again soon. The full PE Harvest dataset can be easily distilled down to each client’s investment criteria, via the Entry EV range, previous seller type, breadth of auction process, sector, geography, holding period; even the PE professionals whose portfolio it’s in with contact info and bios to help surface warm intros. Whether it’s a 5 billion fund that’s always preferred to buy from other sponsors or a lower middle market fund looking to become more proactive on this sourcing channel, there are more than enough quality assets to explore.
