We have witnessed a deteriorating private equity market during 2023. Private equity firm exits and new acquisitions are at the lowest level in the last 10 years. Many of our corporate buy-side clients are also sitting on the sidelines.
Several of our M&A colleagues, business owners, CEOs, clients, and senior level PE partners are very worried about the future of the U.S. business climate. Whenever uncertainty of the future exists, it has a negative impact. Consumers cut back on spending and save more. Businesses reduce production, capital investment, and stop strategic acquisitions. Banks become risk-adverse, demand higher collateral, and raise rates.
This uncertainty is caused by continued high interest rates, persistent inflation, fear of a government closure, and wars in Israel, Ukraine, and other smaller countries.
During the last third quarter, we saw PE firms cancel exits and acquisitions – large mega acquisitions or exits and smaller ones. The leveraged loan market has come to a standstill, impacting many deals.
Our research shows the value of exits in the third quarter fell over 40% to only $44 . This is more than 80% lower than the second quarter of 2021. The number of U.S.PE exits dropped over 45% lower during the third quarter, compared to last year.
New transactions plunged in the third quarter. Total value of U.S. private-equity transactions is over 50% lower than fourth quarter of 2021. Larger platform acquisitions are off over 20% this year. These large transactions deal structures use leveraged loans, which have been lately non-existent.
The difference between declining exits and lower entry acquisitions was over $475 billion this year. We are worried that if exit volume doesn't pick up, PE firms will face maturity issues for their funds and negatively impact their performance and infuriate their limited partners.
We believe an acquisition strategy in this current environment is to find deals where there is a clear case for near-term sales and profit growth. We know growth-equity investments are easier to negotiate and close in this economic troubled environment with the current hurdles. Our research reveals that growth acquisitions – investments comprised about 20% of all U.S. deals in the third quarter of this year. These growth deals were about the same as the second quarter and more prevalent than a year ago. But then with other transactions – investments falling off, this may not be all that good news.
We are working with our strategic buyers and private equity firms to be more creative in finding ways to generate good new deals and get them closed.
This shows the trends for the near term.