New York, May 28, 2024 – The state of the PE industry is underscored by strategic caution driven by heightened competition, extended investment timelines, and a rigorous deal selection process, according to insights from the recently published 2024 Deal Sourcing Databook from SPS by Bain & Co. (SPS).
The annual report evaluates market trends through the unique lens of SPS M&A market activity data, revealing key trends impacting the deal sourcing environment under current market conditions.
A constrained exit environment persists as holding periods hit a record high of five years, reflecting caution and longer investment horizons.
With all-time high levels of dry powder and pressure from LPs to find and execute new deals, extended holding periods are hindering the ability to free up capital for new investments as well as limiting strategic flexibility.
With fewer deals logged in PE pipelines closing compared to historical averages, the median conversion rate of deals from PE pipelines has declined to 24%, suggesting increased scrutiny and selectivity.
Despite a year-over-year decline in overall deal activity in 2023, PE buyers completed more deals than corporates, indicating a shift in market dynamics. In particular, the Financial Services, Media & Telecommunications, and Business Services sectors have seen the most significant year-over-year increases in PE-backed deals.
While corporate buyers continue to dominate the Upper Market, PE buyers have outpaced corporates in the Middle Market for the past five years and have recently overtaken them in the Lower Market. This trend is driven by a continuation of the buy-and-build strategy and an increase in add-on acquisitions.
Despite experiencing robust growth over the last decade due to favorable market conditions, ample liquidity, and agility in capitalizing on emerging opportunities, the PE industry has lost steam in recent years due to a myriad of macro challenges.
With high levels of dry powder and fewer attractive exits, PE firms face inflated asset prices, leading to potential overvaluation and subsequent challenges in achieving target returns.
Download the full SPS 2024 Deal Sourcing Databook for a comprehensive pulse on market activity trends impacting deal origination in the M&A market.
