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- Private Equity 2024 Midyear Pulse
Bain released their latest 2024 Midyear private equity report.
TLDR: The heightened interest rates environment has created a new paradigm in private equity where LP capital will flow to GPs who have true value creation capabilities to drive alpha… separating the wheat from the chaff… the GPs who rode the “levered beta” wave from cheap debt and multiple expansion in the days of low rates and an abundance of capital.
Some reflections:
1. We are seeing the stabilization of the decline in dealmaking, exits, and fundraising… but still far from 2021 peaks
2. Bid-Ask Spread between Buyers and Sellers is showing signs of narrowing
3. LPs making new fund commitments are focused on a “narrow swath of favored funds”
4. LPs continue to press GPs to increase pace of distributions for existing investments
5. Cash in Hand > Money on Paper: LPs care more than ever about realized returns (DPI) than partially realized / unrealized returns (TVPI = DPI + RVPI)
In reverse order with some of the most important take aways:
3. / 4. / 5. LPs Extremely Focused on Distributions and Investing in a Narrow Swath of Favored Funds
Reading the tea leaves… why does this matter and where are we heading?
Margin expansion and cheap leverage played an important role in “value” realized in private equity deals over the last 2 decades.
Our view @Gather Capital is that:
- this the new private equity paradigm in the heightened rate environment…
- will help “separate the wheat from the chaff”…
- as LP capital increasingly flows towards GPs that have a proven ability to drive value creation by generating alpha…
…over those GPs who rode the “levered beta” wave over the last decade fueled by low rates and frothy capital.
1. We are seeing the stabilization and flattening of the downward trend in dealmaking, exits, and fundraising… but still far from 2021 peaks
2. Bid-Ask Spread between Buyers and Sellers is showing signs of narrowing
“The market is clearly still getting used to the notion that interest rates may stay higher for longer and that valuations derived amid much friendlier monetary policy will ultimately have to be adjusted
Anecdotal evidence suggests that buyers and sellers are feeling each other out, albeit slowly, and trying to find creative ways to break the stalemate over price expectations
Existing data suffers from a small sample size, but deal multiples appear to be easing somewhat as investors focus on company performance and business fundamentals
Any lingering hope that simple multiple expansion will carry a deal to a strong return has receded sharply”