The Reports of PE Large Buyout’s Death are Greatly Exaggerated…
“PE’s megafund era is over.”
That is according to the attached PitchBook downloadable report. The Mark Twain quote: “the reports of my death are greatly exaggerated” comes to mind…
From the article: “Leveraged buyouts are shrinking, and the median take-private deal size has halved. Middle-market funds — vehicles that raise between $100 million and $5 billion — are outperforming their larger counterparts. And middle-market funds are pulling in their biggest share of private equity capital commitments in a decade. “
Here at E78 Partners, we are focused on supporting middle market Private Equity Sponsors. We are most definitely seeing an uptick in activity. Our experience is that even in this challenging environment, middle-market activity is alive and well.
Many buy-and-build and add-on PE strategies require less debt capital. The companies are smaller, the fund sizes are smaller, but the opportunities for outperformance remain large.
Not So Fast…
However, I wouldn’t yet write the obituary for large buyout deals. Different PE strategies are more effective during different macro environments. Smaller, middle-market deals are performing well right now. Expect that to continue.
I have a more subtle viewpoint on larger buyout deals. The era is not ‘over.’ The era is simply on ‘pause.’
It is not necessarily the level of interest rates that brought buyout activity to a halt. It was the sharp and rapid rise in rates that slammed the brakes.
The King is Dead. Long Live the King…
Historically speaking, interest rates still remain at relatively low levels. The buyout market is not dead, it is simply waiting for clearer guidance on the rate and magnitude of future Fed interest hikes.
As soon as the future rate hike forecast clears, expect large buyout to pick up steam again.
© Copyright June 2023. Marc Patterson. All Rights Reserved.