Key Takeaways
- • Private equity deal value fell 60% and deal count 35% from 2021 peaks, while exit value dropped 66% and the number of funds closing declined nearly 55%, according to Bain & Company's 2024 Global Private Equity Report.
- • General partners hold a record $3.2 trillion in unsold assets, and LPs starved for distributions are pulling back new allocations to all but the largest, most reliable funds.
- • Buyout investment value dropped 37% to $438 billion in 2023, the lowest since 2016, with deal count down 20% to roughly 2,500 transactions.
- • Buyout-backed portfolio companies in the US show interest coverage of 2.4x EBITDA, the lowest since 2007, adding pressure on GPs to pursue liquidity solutions and operating leverage.
- • Buyout funds hold a record $1.2 trillion in dry powder, with 26% of it four years old or older, creating incentive for GPs to deploy capital even amid uncertain conditions.
Summary
Bain & Company's 2024 Global Private Equity Report describes 2023 as a year in which private equity activity contracted sharply under the pressure of rapidly rising interest rates. Deal value and deal count have fallen 60% and 35%, respectively, from their 2021 peaks, exit value is down 66%, and the number of funds closing is off nearly 55%. Bain notes that while these declines resemble the post-2008–09 global financial crisis pattern, the drivers are fundamentally different, and the current environment is largely unprecedented.
The central constraint identified by Bain is the exit backlog. GPs are sitting on $3.2 trillion in unsold assets, and with exit channels largely closed, distributions to LPs have slowed. LPs that are cash-flow negative have become highly selective. The industry still raised $1.2 trillion in fresh capital in 2023, including $448 billion for buyout funds, but capital concentrated in the largest reliable funds while fundraising for others became as difficult as it has ever been.
In investments, buyout deal value excluding add-ons fell to $438 billion, a 37% decline from 2022 and the weakest total since 2016, with Europe and Asia-Pacific both experiencing significant declines. Deals reliant on bank financing suffered most, as yields on large syndicated loans approached 11% in the US and 9% in Europe, both 10-year highs, and banks pulled back on new issuance.
Bain outlines a cautiously constructive view. It expects rates to moderate in the coming year absent new macro shocks, and dry powder levels may push GPs to deploy capital. Exits, however, are expected to remain difficult absent a sharper rate decline, making liquidity creativity a defining theme for 2024. Bain recommends focusing on operating-leverage value creation, rigorous portfolio-by-portfolio assessment including amend-and-extend and secondaries options, and more professional LP communication and go-to-market capabilities.
The central constraint identified by Bain is the exit backlog. GPs are sitting on $3.2 trillion in unsold assets, and with exit channels largely closed, distributions to LPs have slowed. LPs that are cash-flow negative have become highly selective. The industry still raised $1.2 trillion in fresh capital in 2023, including $448 billion for buyout funds, but capital concentrated in the largest reliable funds while fundraising for others became as difficult as it has ever been.
In investments, buyout deal value excluding add-ons fell to $438 billion, a 37% decline from 2022 and the weakest total since 2016, with Europe and Asia-Pacific both experiencing significant declines. Deals reliant on bank financing suffered most, as yields on large syndicated loans approached 11% in the US and 9% in Europe, both 10-year highs, and banks pulled back on new issuance.
Bain outlines a cautiously constructive view. It expects rates to moderate in the coming year absent new macro shocks, and dry powder levels may push GPs to deploy capital. Exits, however, are expected to remain difficult absent a sharper rate decline, making liquidity creativity a defining theme for 2024. Bain recommends focusing on operating-leverage value creation, rigorous portfolio-by-portfolio assessment including amend-and-extend and secondaries options, and more professional LP communication and go-to-market capabilities.
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