The PE sector continued to experience a number of cyclical headwinds in the third quarter, as rising interest rates, growing concerns of a recession, deteriorating macro sentiment and challenges in the financing markets all conspired to limit firms’ ability to execute new transactions. At the same time, however, firms continue to position themselves for long-term strategic growth, with new product launches and innovations, and by tapping new sources of capital that will allow the industry to continue to grow.
Deal sentiment softens amid hesitation in the financing markets; firms continue to opportunistically seek high-quality assets
After record-setting levels of deal activity last year and into early 2022, deal volumes began to moderate toward the end of the first half of the year, as the macro-outlook became more uncertain, valuation gaps emerged. And a measure of dislocation in the financing markets limited the amount of capital that firms could effectively put to work. Activity in the first half of this year declined by 18% versus 2021, a fairly modest drop considering that last year was by far the busiest year on record for PE firms. In the third quarter, however, activity declined 55% relative to Q2.