A shortage of debt financing due to rising interest rates and a reluctance by banks to loosen their purse strings has caused private equity funds to rethink how they pull off large buyout deals, according to a report by Reuters.
After a rousing start to 2022, the leveraged buyout (LBO) market has slowed down, as the war in Ukraine and hawkish interest rate moves drove up financing costs and weighed down valuations, resulting in a 40.4% contraction in global buyout activity up to 14 December, according to data from Refintiv. The data also shows that the number of LBO deals announced worldwide has dropped 23.3% from the same time last year.
According to data from Deallogic, dealmaking globally has slumped by 37% to $3.66 trillion so far this year, after hitting an all-time high of $5.9 trillion last year.
The report cites unnamed bankers and investors as saying that while big deals are still being completed, Blackstone’s acquisition of Emerson’s Climate Technologies business in the US and KKR’s purchase of French insurance broker April are just two examples of how buyout firms are either having to rely on private lenders and credit funds for financing or invest more of their own cash.
