Back to the Future for the 2024 Deal Landscape?
By
Vito Sperduto, Larry Grafstein, John Cokinos and Henry Johnson
Published January 23, 2024
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2 min listen
Familiar fixtures are set to return to private equity M&A. Conventional financing is starting to look more attractive again.
View audio transcript
Are sellers waiting for a credible IPO market to provide a realistic alternative to a sales process?
Hank Johnson: A lot of our private equity sponsors have a bias towards a sale and a complete exit. That said, the path to go public is, for very large companies, just more actionable, because the buyer universe is smaller and it’s harder. But the leverage profile is very different in public. While some of those businesses have grown, there is a deleveraging that’s required to go public.
Vito Sperduto: You’re certainly going to consider alternatives – a partial monetization, a partial sale, a continuation fund. But when the ability to execute a traditional LBO is more realizable in the market, you’re going to see people pivot to that.
“When the ability to execute a traditional LBO is more realizable, you’re going to see people pivot to that.”
Vito Sperduto, Global Head of M&A
Private credit has filled the gap for private equity in a tough financing environment – will that slow down as the market changes?
John Cokinos: We saw private credit take a lot of share over the last 18 months. In a lower rate environment, I think you will see that some of those deals that were done at the SOFR 600 to 700 level, we will be able to refinance those at compelling rates. That will be a better cost of capital achieved for the owners, improving their IRRs.
Private credit is here to stay. It is going to be part of the ecosystem of leveraged finance. It’s good for middle market financings, and it is able to take advantage of market dislocations, when rates get higher or when banks are sidelined.
‘Private credit is here to stay – it’s going to be part of the ecosystem of leveraged finance’
John Cokinos, Global Head of Leveraged Finance and Capital Markets
What sectors will be leading the way for deal activity in 2024?
Sperduto: We have seen robust activity across the board in our pipeline. Certainly some of the energy M&A that’s been happening on the corporate side has been a big boost to the business. We are seeing a lot of healthcare and technology M&A, as we do every year.
Johnson: There are housing-related opportunities as mortgage rates come down. Infrastructure funds are broadening their scope. Business services has always been a very active area within private equity, and we expect that to continue; we’ve seen activity in HVAC and plumbing, a continued rise in outsourcing opportunities, and a broader scope of asset managers, financial and insurance brokerage. Within every industry group, there are sectors we believe are well positioned for this coming year.
Cokinos: We expect to see a healthy amount in the industrial space – aerospace, defense, transportation, building products, and capital goods. I think you will see more demand for consumer situations as well. Healthcare is going to be a little challenging because we are in an election year and people get very worried about government change.
“Within every industry group, there are sectors we believe are well positioned for this coming year.”
Hank Johnson, Co-head of U.S. M&A
What are your general expectations for the market in 2024?
Sperduto: In the second half of the year, the US presidential election and the large number of elections going on globally will give some pause. But companies and clients, with the pent-up demand and also with their experience historically, are prepared to operate through that.
“Election year will give some pause – but companies are prepared to operate through that.”
Vito Sperduto, Global Head of M&A
Johnson: I’m looking forward to an increase in transaction volume with our private equity clients. I expect ’24 will have M&A volumes much more in line with historical levels, with the potential to exceed those. That is very encouraging.
Cokinos: The markets haven’t felt this good in 18 months. It may be back-loaded this year, but I do think we will see a pretty vibrant market.
Vito Sperduto
Global Head, Mergers & Acquisitions
Vito Sperduto is the Global head of Mergers and Acquisitions at RBC Capital Markets.
He is responsible for the bank’s overall M&A effort across all industry sectors. Historically, he has extensive sector experience with origination and execution of transactions in industrials (with a focus on aerospace, defense and government services), communications, media and entertainment, technology, and business services.
Vito has over 27 years of investment banking experience, during which he has advised on over 150 transactions with a combined value exceeding $100 billion.
Prior to RBC, Vito was most recently Managing Director and Head of Software M&A coverage for CIBC World Markets in New York, where he worked across the defense, consumer, business services and technology sectors.
He has previously worked for SoundView Technology Group, Smith Barney and Kidder, Peabody.
Vito earned his B.A. from Harvard University in Computer Science / Engineering Sciences.
Larry Grafstein
Deputy Chairman, Global Investment Banking
Larry Grafstein has been Deputy Chairman of the Global Investment Banking at RBC Capital Markets since September of 2018. In his 30 years on Wall Street, he has advised clients on nearly $1 trillion of completed transactions. His experience spans all industries and geographies and includes some of the largest and most complex M&A, restructuring, equity and privatization deals.
His clients over the years have included AerCap, AT&T, BAT, Charter Communications, Creative Artists Agency, Fiat Chrysler Automobiles, Hutchison Whampoa, Intel, Jabil, Juniper, Leucadia, Level 3, Microsoft, Mosaic, Sprint, Time Warner, TPG, Visteon and Vodafone. Recently he advised CSX on its response to activist investor Mantle Ridge, IBM on its acquisition of Truven, and Molson Coors on its acquisition of its Miller Coors JV. He advised on the restructurings of WorldCom and Nortel, two of the largest done to date.
He has worked on behalf of the Governments of Canada and Ontario regarding their investments in Chrysler and General Motors after the financial crisis and advised on the landmark privatizations of Telefonos de Mexico and Telstra of Australia. He recently represented Statewide Mobility Partners, a consortium of investment funds, on the divestiture of Indiana Toll Roads, one of the largest infrastructure sales in US history. In 2014 he helped settle the strike and consumer boycott at Market Basket Supermarkets in New England through the sale by certain members of the Demoulas family of their ownership stake and resolution of their 20-year control dispute.
Mr. Grafstein is a graduate of Harvard University (B.A.), Oxford University (M.Phil, Balliol College, Rhodes Scholar), and the University of Toronto (J.D.). He is co-chair of his Harvard class and has served on the board of a number of public companies and philanthropic institutions, including the US board of Upper Canada College and the board of trustees of Horace Mann School in New York.
John Cokinos
Global Head, Leveraged Finance & Capital Markets
John Cokinos is the Co-Head of US Leveraged Finance and Capital Markets at RBC. He joined the US leveraged finance and capital markets team at RBC Capital Markets in March 2014. He and Mr. Charles Smith oversee all origination and distribution activities under the leveraged finance business. Mr. Cokinos focuses on acquisition finance and private equity transactions with specific industry expertise in Technology, Healthcare, Financial Services and Industrials.
Prior to joining RBC, he spent 7 years at Bank America Merrill Lynch, where his last role was head of leverage finance capital markets. Before joining BAML, Mr. Cokinos worked at Lehman Brothers from 1998 until 2007. He is a graduate of Cornell University with a BS in Business Administration, class of 1995. He is a board member of the Fiver Children’s Foundatoin, a non-profit organization that helps New York City youth. Mr. Cokinos resides in Manhattan with his wife and three children.
Henry Johnson
Co-Head, US Mergers & Acquisitions
Henry Johnson is a Managing Director and Co-Head of U.S. Mergers and Acquisitions at RBC Capital Markets. He joined RBC in 2013 and has over 20 years of investment banking experience. Prior to joining RBC, Henry was a Managing Director at Barclays, and previously worked at Lehman Brothers.
Henry received his A.B. in Economics from Duke University and an MBA from Duke’s Fuqua School of Business.
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