After two turbulent years, the global private equity (PE) sector has found some stability, as highlighted by Bain & Company’s 2024 Private Equity Midyear Report. While the worst may be over, the path to a full recovery remains fraught with challenges. The report emphasizes that the sector’s activity continues to lag behind historical norms, despite having $3.9 trillion in available capital, including $1.1 trillion in uncalled capital within buyout funds.
Recovery Slows Despite Capital Availability
By mid-2024, the global buyout deal count was down just 4% on an annualized basis compared to 2023, indicating that the market might end the year relatively flat. However, the projected buyout deal value is expected to increase by 18% to $521 billion, driven by larger deal sizes rather than a higher number of deals. This shows that while activity remains slow, higher-value transactions are pushing up the total value.
Similarly, exit values have stabilized, with the total projected to reach $361 billion by the end of 2024, a 17% increase compared to the previous year. However, this still leaves 2024 potentially as the second-worst year for private equity exits since 2016.
Market Uncertainty Remains
General partners (GPs) are cautiously optimistic, noting signs of recovery in deal pipelines, but many challenges persist. Macroeconomic uncertainties, high-interest rates, and geopolitical turbulence are reshaping the industry. Bain’s Hugh MacArthur, chairman of the global PE practice, warned that fundraising will likely remain constrained until 2026, making it difficult for many firms to meet capital-raising targets.
The ongoing gridlock in private equity exits continues to put pressure on firms to return capital to limited partners (LPs). As LPs become more selective, capital inflows are being funneled to a small group of large funds, while others struggle to meet their fundraising goals.
Outlook for the Private Equity Sector
Despite the difficulties, there are some encouraging developments, such as the reopening of the initial public offering (IPO) market. However, the IPO market still represents a small fraction of total exits, indicating that the exit environment remains challenging. PE firms are also grappling with elevated interest rates, which are affecting debt-laden portfolio companies. Bain advises that firms focus on value creation within their portfolios to stay competitive in this environment.
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FAQs
- What does Bain’s 2024 Mid-Year Report reveal about private equity trends?
The report indicates that the private equity sector has stabilized after a two-year slump, but deal-making and exits remain below historical averages. Growth is driven by larger deal sizes rather than increased activity.
- What are the key challenges facing the private equity sector in 2024?
The sector faces significant challenges, including managing rising interest rates, the backlog of exits, and pressure from limited partners (LPs) to return capital. Fundraising remains constrained due to the slow pace of exits.
- How have buyout deal values performed in 2024?
Buyout deal values are projected to reach $521 billion in 2024, an 18% increase from last year. This growth is primarily due to larger deal sizes, as the number of deals has remained relatively flat.
- What is the outlook for private equity exits in 2024?
Exit values are expected to remain flat in 2024, totaling around $361 billion. Although this is a 17% increase from 2023, it could still mark the second-worst year for private equity exits since 2016.
- How is the fundraising environment for private equity in 2024?
Fundraising continues to be constrained due to the slow pace of exits, with limited partners increasingly focusing on a small group of favored funds, making it challenging for other firms to meet their fundraising targets.