This article is an extract from Lexology Panoramic: Private Equity (Transactions) 2024. Click here for the full guide.
Global mergers and acquisitions (M&A) deal volume and value measured in dollars in 2023 continued the fall that began in 2022 from the historic levels recorded in 2021, as high interest rates, geopolitical instability – with notable conflicts in Israel, Gaza and Ukraine – and continued uncertainty regarding the chances of a recession permeated the markets (Refinitiv). Enhanced regulatory scrutiny may also have impacted the global M&A landscape, as regulators in the United States, European Union and United Kingdom continued their tough stance against market concentration. M&A deal value reached only US$3 trillion during 2023, a year-over-year decrease of 15.8 per cent from US$3.56 trillion in 2022 and 35.5 per cent from the peak values in 2021, marking the lowest global M&A deal values since 2013 (excluding the global lockdown in the early part of 2020) (Pitchbook). By number of worldwide deals, approximately 55,000 deals were announced in 2023, a decrease of 6 per cent compared to the previous year’s levels and constituting a three-year low (Refinitiv). Global M&A value declined at a slower rate than in 2022, with only a 15.8 per cent year-over-year decrease in 2023 versus a 23.4 per cent decrease in 2022 (Pitchbook). Global cross-border deal activity totalled US$954.2 billion, falling by 12 per cent from 2022, marking the slowest annual period for cross-border M&A since 2013 (Refinitiv). However, the slowdown in global M&A activity eased slightly in the fourth quarter, with an increase of 23 per cent compared to the third quarter of 2023, marking the strongest quarter globally for M&A since the second quarter of 2022 (Refinitiv). Notably, the global median EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortisation) multiple, often used to determine valuations of companies and businesses, showed signs of stabilisation in 2023, up to 9.3x from 8.9x in 2022, although the average multiple was still 15.5 per cent below the all-time peak of 11x in 2021 (Pitchbook). The average global deal size was up by 16.2 per cent from US$317.3 million in 2022 to US$378.5 million in 2023. However, the number of deals with a value greater than US$1 billion decreased to just 374 in 2023, with a cumulative deal value of US$1.48 trillion, a year-over-year decrease of 11.3 per cent from US$1.67 trillion in 2022, across a total of 419 deals (Pitchbook). The energy and power sector was the strongest sector for all M&A deals, posting deal activity worth US$502.3 billion, accounting for 17 per cent of overall deal value, supplanting the technology sector in the top spot, which fell by 47 per cent. The value of private equity-backed M&A deals totalled approximately US$1.14 trillion over 11,535 deals, down 27.2 per cent from US$1.56 trillion over 14,618 deals in 2022. Private equity deals accounted for 34 per cent of all M&A activity by number and 38 per cent by value, respectively. While 2023 was the slowest full year for private equity deal-making since 2019, historically it still marked the sixth-largest year for PE-backed M&A, based on annual total deal value (Refinitiv).
Americas
Announced M&A deal value in 2023 in the Americas totalled approximately US$1.53 trillion across 18,945 deals, down from US$1.65 trillion across 19,529 deals in 2022. Fear of economic downturn, geopolitical instability, high interest rates and sustained valuation gaps between sellers’ expectations and what investors were willing to pay continued to drive deal volume and value down from the historic numbers recorded in 2021, marking the slowest annual period for US deal-making in the last six years (Refinitiv). While the total M&A deal value in North America decreased by 11 per cent year-over-year, deal activity in the last quarter of 2023 saw a substantial increase quarter-to-quarter with a 32.5 per cent boost from the levels seen in Q3 of 2023. This level of activity was mostly driven by a few large energy deals recorded in the last quarter, as the top ten North American deals in Q4 cumulatively surged by 160 per cent in deal value as compared to the top ten deals in Q3. On the private equity side, 2023 was a strong year for add-on transactions, where private equity sponsors’ existing portfolio companies pursued bolt-on, tuck-in and other strategic transactions, and partial-stake sales, where private equity sponsors would sell a portion of their stake in a portfolio company to another sponsor.
M&A deal volume in the Americas, excluding the United States, increased by less than one per cent year-over-year, with 4,227 deals announced in 2023 as compared to 4,197 deals in 2022. Total M&A deal value in the Americas, excluding the United States, was approximately US$165.6 billion in 2023, down approximately 20 per cent from US$206.5 billion in 2022. Latin American countries saw decreased levels of activity in the M&A market throughout the majority of 2023, with the number of deals completed in Latin America falling by 13 per cent year-over-year. The region saw a significant decrease in activity levels in the second half of the year, when M&A deal value totalled US$24.5 billion, down 31.4 per cent from US$35.8 billion in the first half of 2023, and it is not certain if the M&A activity levels in Latin America will rebound again in the near future to similar levels recorded in 2021 (all the above data from Refinitiv). Notable announced private equity acquisitions in the Americas in 2023 included the US$10 billion acquisition of Qualtrics International by a consortium led by Silver Lake; the US$6.15 billion acquisition of Focus Financial Partners by Clayton, Dubilier & Rice LLC and Stone Point Capital LLC; and the US$4.2 billion acquisition of Cvent Holding Corp by a consortium led by Blackstone and Abu Dhabi Investment Authority (Bloomberg).
Europe, the Middle East and Africa
Announced M&A deal value for targets located in Europe, the Middle East and Africa (EMEA) totalled approximately US$656.8 billion in 2023, a decrease of approximately 30 per cent from US$931.9 billion in 2022. Europe accounted for approximately US$598 billion of the total announced M&A deal volume, down approximately 28 per cent from US$834.5 billion in 2022 and representing a 10-year low for value in the region. M&A deal value involving the Middle East and Africa reached approximately US$58.7 billion across 1,657 deals, a 40 per cent year-over-year decrease from approximately US$97.4 billion reported in 2022 (all the above data from Refinitiv). European-based private equity activity (including exits, buyouts and secondary buyouts) reached €420.5 billion across 7,590 deals, a 26.5 per cent decrease from 2022 in terms of deal value, which reached €572.1 billion, but a 4.4 per cent increase in volume from 7,267 deals recorded in the prior year. The mega deals market (deals above €1 billion) experienced another slow year, plummeting by over 45 per cent year-over-year, hitting a ten-year low in total volume. Meanwhile, European private equity deals under €25 million contributed to the majority of deal volume by count, yet underperformed as compared to last year’s deal volume levels by 17.9 per cent. In 2023, take-private transactions recorded their second-highest year, cumulatively worth €33 billion across 51 completed deals, including the €2.6 billion acquisition of Software AG by Silver Lake. Strategic bolt-on acquisitions (in which an acquirer targets a company within a similar or adjacent line of business) represented 67 per cent of buyout volume and 39.3 per cent of buyout value in 2023, as private equity players favoured smaller transactions and took advantage of lower valuations to grow their portfolios through M&A activity (all the above data from Pitchbook). The EMEA initial public offering (IPO) market decreased by 18 per cent by number and by 44 per cent by proceeds year-over-year, recording only 193 IPOs and raising just US$24.2 billion in an unsettled geopolitical and economic environment. Even though the EMEA IPO market slowed considerably, this region also delivered five of the ten largest IPOs globally in 2023 (all the above data from Ernst & Young). Notable announced or completed European private equity transactions in 2023 included the €14.7 billion acquisition of Adevinta ASA by a consortium led by Blackstone, Blackstone’s acquisition of Civica Group worth €2.5 billion and Brookfield’s acquisition of X-Elio Energy SL worth €2 billion (Bloomberg).
Asia-Pacific
Announced M&A deal value in the Asia-Pacific region totalled approximately US$602 billion across 13,282 deals in 2023. This represented a decrease in deal value of approximately 26 per cent from 2022, when deal value reached approximately US$812 billion. The region accounted for approximately 21 per cent of global deal value, which represented a slight decrease from the region’s share in 2022 of 23 per cent, and a substantial increase from the 7 per cent that it held pre-pandemic in 2019. Announced M&A deal value involving China reached US$307 billion in 2023, a 22 per cent decrease from 2022. A total of 5,237 deals were completed in China in 2023, a 4.4 per cent increase from 2022, and a 5.7 per cent increase from the third quarter of 2023. During the fourth quarter of 2023, overall value of M&A deals in China stayed relatively flat as it reached US$83.8 billion, a slight increase of 1 per cent as compared to the third quarter of 2023. Chinese outbound acquisitions were up 50 per cent as compared to 2022, totalling US$24 billion, while activity involving foreign firms acquiring Chinese companies was down 1.9 per cent from 2022, totalling US$46.5 billion. The industrials sector was the strongest sector for all M&A deals in China, posting deal activity worth US$66 billion, a year-over-year decrease of 22.7 per cent and accounting for 21.5 per cent of the overall M&A deal value in China, followed by materials and technology, accounting for 14.6 per cent and 13.3 per cent, respectively, of overall M&A activity during 2023, with technology deal activity in terms of value falling 17 per cent from the 2022 levels (Refinitiv). In Japan, there were 3,741 M&A transactions announced in 2023 with a deal value of US$105 billion, a year-over-year decrease of 3 per cent in deal count but a 33 per cent increase in deal value (all the above data from Refinitiv). Japanese private equity-backed deals value increased year-over-year by 26 per cent from US$17.93 billion in 2022 to US$22.61 billion in 2023. However, Japanese private equity deal volume decreased by 24.4 per cent year-over-year from 131 deals in 2022 to 99 deals in 2023 (Pitchbook). A notable M&A transaction announced in the region in 2023 was the acquisition of Textainer Group Holdings by Stonepeak Partners for approximately US$7 billion (Bloomberg).
Debt financing markets
In 2023, overall global debt capital markets activity was up year-over-year by 6 per cent in terms of value, totalling US$8.9 trillion over 29,300 offerings brought to market. Global syndicated lending in 2023 totalled US$4.3 trillion over 9,222 deals, a 14.8 per cent decrease year-over-year from 2022 in terms of value and an 11.5 per cent decrease in deal count, being the slowest year for syndicated lending since 2020. Even though the fourth quarter of 2023 saw a 10 per cent uptick in loan proceeds, it marked only the second consecutive sub-US$1 trillion quarter in value for syndicated lending since 2020. Globally, acquisition-related financing decreased to US$362.6 billion during 2023, a 40 per cent decrease from 2022. European syndicated lending totalled just US$679 billion across nearly 1,200 deals for 2023, an 8 per cent decrease in proceeds year-over-year and the slowest period for syndicated loans in Europe since 2012. Asia-Pacific syndicated lending remained level from 2022, totalling US$605.5 billion. This performance was despite the 9 per cent decrease year-over-year in Japanese syndicated lending, which reached its 19-year low. Bond issuances by investment-grade-rated companies reached US$4.3 trillion in 2023 globally, up 5 per cent from 2022, marking another year of above-pre-pandemic levels in this category. Green bond issuances in 2023 increased by 10 per cent to US$422.3 billion, accounting for the largest full-year period for issuance since 2021. High-yield bond issuance totalled to US$219.2 billion globally, increasing by 66 per cent from the 2022 levels, and marking a two-year high. High-yield debt activity in the United States, Canada, and the United Kingdom accounted for over three-quarters of all global activity for 2023 (all the above data from Refinitiv).
Portfolio company sales and public listings
With many private equity firms continuing to hold onto their portfolio companies in 2023 given the market conditions, the decrease in portfolio company exits in 2022 continued into 2023 relative to the record-breaking activity levels in 2021. Financial sponsors exited approximately US$574.2 billion of investments globally in 2023, down 36.2 per cent from US$782.5 billion in 2022. Exit deals count decreased to 2,415 in 2023 from 3,528 exits in 2022. Private equity exit activity in the United States also declined throughout 2023, totalling over 1,121 exits for the year, a slight decrease in deal volume from 2022. Similarly, Europe experienced the slowest private equity exit activity in 2023 since 2013 with only 1,009 exits worth US$221.9 billion, down by 30.9 per cent in terms of volume and 25.2 per cent in terms of deal value from US$268.3 billion across 1,461 deals in 2022 (Pitchbook). A notable completed portfolio company investment exit in 2023 was the US$721 million IPO of Kokusai Electric Corporation.
After the global IPO market screeched to a halt in 2022, it was more of the same in 2023. There were 1,298 IPOs completed in 2023, which raised approximately US$123.2 billion, a 33 per cent decrease in value from US$184.3 billion raised in 2022 and an 8 per cent decrease in IPO count from 1,415 in 2022. The global IPO market is expected to face continuing headwinds in 2024 due to sustained market volatility and the relative subpar performance of many 2023 IPOs to date (all the above data from Ernst & Young). Private equity-backed IPOs also saw a steep decline in 2023, as firms favoured holding onto assets until market conditions improve. Private equity firms raised just US$6.8 billion through US IPOs in 2023, compared to US$296.5 billion in 2021. Exits via public listings in the United States almost came to a full stop in the second half of 2023, recording just US$190 million of value (just a 0.3 per cent share of the total private equity exits) in Q3 and US$1.96 billion (a 2.3 per cent share) in Q4. By comparison, in 2021, these values were US$85.64 billion in Q3 (a 38 per cent share) and US$34.71 billion in Q4 (a 17.7 per cent share) (all above data from Pitchbook).
Secondary transactions increased from 2022, with approximately US$112 billion of value, but still short of the record of US$132 billion in 2021. Deal volume increased by 60 per cent in the second half of the year to US$69 billion, up from US$43 billion in the first two quarters of 2023, marking the second-busiest year for secondary transactions in history. General partner (GP)-led transactions remained even with the 2022 levels at around US$50 billion. Traditional limited partner-led transactions took most of the share of secondaries in 2023, reaching a total of US$60 billion, and grew 7 per cent year-over-year from 2022. Continuation funds – funds raised by private equity sponsors for purposes of moving all or a portion of the ownership of certain of their assets held by existing funds to a newly created fund – were the most common GP-led secondaries for a third year in a row. Continuation funds permit GPs and certain investors to hold assets for longer periods, rather than seeking traditional liquidity paths such as a public listing or a secondary sale to a third party. These funds are expected to continue to attract attention in 2024 as an alternative to traditional paths while waiting out market volatility to better-time exits (all above data from Jeffries).
Rise in private equity fundraising
While global private equity fundraising continued to decline in 2023 from an all-time high in 2021, funds across buyouts, venture capital, growth equity, secondaries and other strategies gathered US$785 billion (all statistics in this section are derived from preliminary data provided by Private Equity International). This figure represents the third-largest amount raised in any single year, after US$868 billion in 2021 and US$823 billion in 2022. Moreover, the number of funds closed in 2023 declined relative to 2022 to its lowest number since 2019; 1,757 funds held a final close by the end of December 2023, compared to 2,217 funds in 2022. The amount raised in 2023 is impressive, considering the macroeconomic factors, including inflationary pressures, hawkish fiscal policy and geopolitical uncertainty, affecting the global economy.
Consistent with 2021 and 2022, capital was largely concentrated in mega-funds (ie, funds raising approximately US$5 billion or more) of recognised, top-performing sponsors. This concentration demonstrates the continued consolidation in the private equity industry in favour of larger, established sponsors with proven track records as a result of institutional limited partners seeking to make larger commitments to fewer funds, consolidate manager relationships and invest with sponsors with whom they had prior relationships. Specifically, the 10 largest funds that reached a final close in 2023 together raised close to US$192 billion, which represents approximately 24 per cent of total capital raised during 2023. This indicates a slight increase in consolidation from 2022, where the 10 largest funds that reached a final close in 2022 raised approximately 23 per cent of total 2022 capital raised. Additionally, the average fund size for 2023 was the largest on record, at US$608 million. This represents an increase of US$52 million over 2022.
Regarding the distribution of capital across different types of private equity funds, buyout funds accounted for one-quarter by number of the 853 funds that closed from January to September of 2023, and 53 per cent of the capital raised during such period (a slight increase from 48 per cent in 2022). Growth equity funds accounted for the second-largest sector by the amount of capital raised during such period. This strategy raised US$99 billion through the third quarter of 2023, compared to US$130 billion in the same period of 2022. Venture capital funds constituted 51 per cent of the total 2023 fund count, and 14 per cent of the amount of capital raised through the third quarter of 2023 (consistent with 2022). Secondaries fundraising increased this year through the third quarter of 2023. US$69 billion was closed in secondaries funds over this period, compared to US$24 billion in the same period of 2022, and secondaries funds represented 12 per cent of total capital raised, compared to less than 5 per cent in the same period of 2022.
Geographically, fundraising in 2023 remained strong for North America-focused funds. The amount of capital raised from January to September by North America-focused funds slightly increased from US$218 billion in 2022 to US$227 billion in 2023. Similarly, the percentage of total capital raised in the first three quarters of 2023 by Europe-focused funds increased to 14 per cent, compared to 8 per cent in the same period of 2022. Comparatively, for the same periods, the capital raised by funds focused on multiple regions increased slightly from 37 per cent to 40 per cent.
It is expected that overall fundraising levels will keep pace in the near term, despite macroeconomic headwinds that are expected to impact market activity. A record 5,952 funds in the global market are targeting US$1.16 trillion. Further, the top 10 funds in the global market are looking to raise almost US$182 billion, and at least 17 funds are targeting US$10 billion.
A crowded private equity fundraising environment and market headwinds impacting exits have resulted in extended fundraising cycles. Many investors are also placing a premium on managers with established track records that have navigated a number of past economic cycles. Larger institutional investors will continue to consolidate their relationships with experienced fund managers, and competition for limited partner capital among private equity funds will continue to increase, with alternative fundraising strategies (eg, customised separate accounts, co-investment structures, continuation funds, early-closer incentives, umbrella funds, anchor investments, core funds, growth equity funds, impact funds, GP minority stakes investing, secondaries funds and complementary funds (ie, funds with strategies aimed at particular geographic regions or specific asset types)) playing a substantial role. As a result, established sponsors with proven track records should continue to enjoy a competitive advantage, and first-time funds will need to accommodate investors by either lowering fees, expanding co-investment opportunities, focusing on unique investment opportunities or exploring other alternative strategies. Moreover, it is anticipated that private equity fundraising will continue to focus on established, dominant markets in North America and Europe. Finally, it is also expected that the US Securities and Exchange Commission will continue to focus on transparency (eg, full and fair pre-commitment disclosure and informed consent from investors), including with respect to conflicts of interest (including, among others, conflicts of interest arising out of the allocation of costs and expenses to funds and portfolio companies, the allocation of investment opportunities and co-investment opportunities and the receipt of other fees and compensation from funds, portfolio companies or service providers). Given this, larger private equity firms with the resources in place to absorb incremental compliance-related efforts and costs are likely to continue to enjoy a competitive advantage over their peers.
Outlook for 2024
After the M&A market reached its historic highs in 2021, numerous macroeconomic and geopolitical developments, such as high interest rates and the Russia-Ukraine and Israel-Gaza conflicts, slowed the global M&A markets significantly in 2022, and that trend continued throughout 2023. However, looking ahead to 2024, with the levelling-off and even the potential for decreases in interest rates, plus the historically high levels of dry powder available for deal-making (up to US$2.49 trillion globally), many practitioners are hopeful that global M&A activity will improve in the first half of 2024, before it likely dampens going into the US presidential election in the back half of the year. As debt costs continue to stabilise, private equity firms may build enough confidence to pull the trigger on attractive buying opportunities amid mounting pressures to deploy capital, and private equity firms on the sell side may decide to do the same with assets that are reaching the end of their hold period. Nonetheless, with such financing costs remaining elevated on a relative basis compared to the handful of years prior to 2022, it remains to be seen whether such pressures will lead to a proliferation of mega- or large-scale buyouts and other M&A deals in the current market environment. Finally, as private equity hold periods continue to get drawn out for their currently held assets, we expect the popularity of GP-led transactions and continuation funds to remain active in 2024 as a means to bridge towards the next upward market cycle. That all said, it remains to be seen how continued regulatory focus on M&A by competition enforcers around the world will impact transactions, as we have already seen some high-profile deals abandoned (eg, Amazon/iRobot) in the beginning of 2024. We would expect the largest transactions, particularly in the technology, pharmaceutical, and healthcare sectors, to continue to draw close scrutiny.
The authors would like to thank Russell Reed and Abby Kieker for their contributions to this chapter.
