Private equity US market insights and trends

PE Pulse. Explore US industry market trends and what private equity leaders are focusing on in 2024.

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PE Pulse is a quarterly global report that provides data and insights on private equity market activity and trends. The following analysis dives deeper into how US respondents are experiencing the market.

First quarter insights from US respondents show that PE firms are optimistic about the growth in the industry on the back of their better comprehension of macroeconomic environment, stagnation in interest rate – though sponsors remain divided in their opinion on pace of decrease in it, – and sponsors’ improved sense of bid-ask spread. Investment activity continued to show resilience and witnessed an uptick in 1Q24 with value boosted by five mega deals (US$5b+). Take-private remains a point of interest with seven deals in the first quarter of the year emphasizing PE’s outlook of opportunity due to mispricing in public equities’ market despite the recent gains. From a sector perspective, Consumer continues as the most favored sector for investments, overtaking technology for two consecutive quarters. Consumer sector companies remained resilient in this high inflation environment by adopting pricing and value chain strategies to offset cost increases which made them attractive to PE investors. According to the latest PE Pulse survey, three-quarters of GPs expect deployment to increase over the next six months, up from 63% in December. Exit markets remain muted and a lack of demand in the primary market is expected to continue to put pressure on LPs. However, in the absence of strategic buyers, the secondary sale remained strong contributing 31% in overall exit volume in 1Q24. Marred by less liquidity as a result of lack of exits and low new capital allocation, fundraising continued to be onerous. Due to low fundraising, GPs with sufficient dry powder are best positioned for deal making.

Amidst credit tightening by banks, private credit has resolved credit issues of sponsors while executing LBOs. Simultaneously, in the current high interest rate environment, private credit has emerged as an ancillary asset class for firms to allocate capital. The secondaries market has witnessed growth which is expected to continue in 2024 as GPs seek innovative methods to attain liquidity while facing the dearth of traditional exit routes.

For the near future, the PE industry’s optimism is trending upward as GPs are leaning into operating in the new macro environment. The market is becoming more cost and efficiency focused. Explore the data points below.

Deal activity¹ witnessed an uptick in its value

Deal value in 1Q24 more than doubled from last quarter – reaching at its highest since 2Q22 – as the macroeconomic conditions has stabilized.

Most GPs expect a pickup in deployment over the next six months

Consumer remained the most favored sector for the investments on the back of increased consumer sentiment

University of Michigan's benchmark Consumer Sentiment Index rose to 79.4 in March, the highest since July 2021 – on the expectation of softening of inflation.

A decrease in borrowing spreads along with increase in risk appetite of investors boosted the loan issuance to US$325b

However, private credit continues to grow its share in LBOs financing in 1Q24 buoyed by core midmarket and lower middle market deals

The exit environment remains challenging due to limitations in the public market and a reduced number of strategic buyers for assets

Lack of liquidity in both GP-led and LP-led markets has prompted proceed generation through secondaries

In contrast to acquisitions, exits sentiment is mixed

PE fundraising² remained onerous in 1Q24 with LPs inclined towards established GPs with big sized-funds

Sources: Dealogic, Pitchbook, EY Analysis

¹Deal activity indicates US PE significant deals i.e. deals worth US$100m and above; Others^ include Telecom, Retail, Oil and gas, Real Estate; ²Fundraising analysis is based on closed funds’ location; *Extension and *Repricing reflects repricing and extensions done via an amendment process

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