Research
Special Report

US private equity outlook 2023

  • Private Equity
  • Multi Sector
  • Global

In the second quarter of 2023, Mergermarket, on behalf of Third Bridge, surveyed 100 senior executives from PE firms based in the US. Among respondents, the last fund size is evenly distributed across US$500m-US$1bn, US$1bn-US$5bn, US$5bn-US$10bn and US$10bn+. The survey included a combination of qualitative and quantitative questions. All interviews were conducted over the telephone by appointment. The results were analysed and collated by Mergermarket, and all responses were anonymised and presented in aggregate.

Executive summary: A more agile and diversified industry emerges

Private equity (PE) dealmakers have always had a reputation for backbone, but there is no escaping how difficult the past 12-18 months have been for the industry. US buyout and exit deal values have seen double-digit year-on-year declines, fundraising is contracting as investors trim back their PE allocations, and acquisition finance markets have cratered in the face of elevated interest rates. It is against this backdrop that we surveyed 100 senior executives at US-based PE firms to explore how they are adapting their approach and what they expect to see in the months ahead (access the report).

Most expect fundraising to become even more challenging over the next 12 months. Exit activity and deployment are projected to slow. Wide bid-ask spreads are choking off deal flow and PE is preparing to hold assets for longer than planned.

PE firms are under no illusions about the challenges they face. But a closer reading of the findings shows that the industry is rapidly evolving, finding ways to protect portfolio company value, unlock liquidity for investors, take advantage of new pools of debt financing, and explore avenues for new deals and exits.

A key insight to emerge from the survey is how the current downturn may end up reshaping the industry’s long-term future. Leading this movement are the big six, who have already taken steps to diversify. Blackstone’s PE AUM, for example, currently sits at around US$287bn1https://www.blackstone.com/our-businesses/private-equity/, while its real estate and credit & insurance businesses have AUM of US$332bn2https://www.blackstone.com/our-businesses/real-estate/ and US$291bn, respectively3https://www.blackstone.com/our-businesses/credit/. Apollo, meanwhile, has US$101bn of PE AUM, versus US$438bn in credit.4https://www.google.com/url?q=https://www.pionline.com/alternatives/apollo-global-managements-aum-rises-quarter-year&sa=D&source=apps-viewer-frontend&ust=1696327757182154&usg=AOvVaw1wEmnsBUZB0dG8qTshEo9W&hl=en-GB

Size and scale are valuable attributes through this period of dislocation – and our survey shows that the largest funds are more optimistic about their fundraising, deployment, exit and portfolio performance than smaller managers. Big funds have been able to command significant resources to support their portfolios and deal teams. LPs are noticing this, with more and more capital allocated to fewer and fewer managers.

Smaller firms that lack the necessary scale to stand out in this market may need to
merge with larger, better-resourced platforms to continue holding the attention of investors and manage rising regulatory and reporting burdens. Industry consolidation has been much discussed, and the pressures facing the market now look set to make this a reality.

What is clear is that the PE industry is nothing if not adaptable. Today it stands more agile and diversified than ever before, bolstered by advanced technology capabilities and closer relationships with third-party service providers.

Leveraging state-of-the-art technology and research are proving essential to navigating both current volatility and preparing to remain competitive for years to come. While the next 12-24 months are unlikely to deliver record-breaking fundraising and deal figures, the asset class has demonstrated its ability to invest and realise value for investors across the cycle.

There are opportunities in this market which are ready to be seized, and shrewd dealmakers who make the most of those opportunities may yet turn 2023 and 2024 into some of the best vintage years.

The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

For any enquiries, please contact sales@thirdbridge.com