The second quarter of 2024 saw a mixed environment for mergers and acquisitions (M&A), with transaction volumes levelling off compared to earlier in the year, according to the US Private Equity Mid-Market Monitor: H2 2024 & Outlook report from investment bank DC Advisory.
The report which highlights US private equity market dynamics, deal activity, and cross-sector trends, reveals that while the total number of deals declined, the value of individual transactions rose, driven by strategic consolidation and regulatory developments.
Even with a substantial list of potential risks to market sentiment, including increasing geopolitical uncertainty, the upcoming US election, and the risk that inflation will reverse course, the report finds a significant amount of pent-up demand which could lead to increased deal-making going forward – particularly in sector-specific cross-border opportunities in technology, healthcare, infrastructure, and industrials.
There will likely continue to be an influx of new investors and dedicated capital for investment across the spectrum of transaction types and structures, the report says.
“Despite some headwinds, it’s clear that the US M&A market is gathering momentum,” said Bill Kohr, CEO of DC Advisory – probably the most widely discussed and impactful of these headwinds is the continued challenges of the fundraising market and the concomitant tough exit environment.
“As private equity firms adjust to new economic realities, we expect the M&A space to remain dynamic, with continued appetite for high-value, sector-specific deals.”
With an optimistic outlook for 2025, DC suggests clients continue to prepare for, and begin to take advantage of, the improving M&A environment and highlights a number of trends to monitor, including: refinancing and dividend recaps, and how the technical environment in credit markets affords quality assets the ability to add leverage and provide sponsors the ability to pull liquidity out offering a return of capital to LPs.
In addition, minority equity raises may provide a mark on the value of an asset driver as an alternative solution to monetising assets and offers the sponsor a third-party valuation of an asset as they look to fundraise in 2024 and 2025.
De-levering transactions and re-positioning of the balance sheet as higher interest rates for longer meanwhile, have resulted in companies needing to reduce senior secured leverage and utilise junior capital PIK solutions.
