Back to the Future for the 2024 Deal Landscape?

Familiar fixtures are set to return to private equity M&A. Conventional financing is starting to look more attractive again.

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Vito Sperduto, Larry Grafstein, John Cokinos and Henry Johnson
Published | 2 min read

Key points

  • A reemerging IPO market may provide alternative exit paths in 2024, but most private equity players will prefer to sell where possible.
  • Private credit will remain part of the leverage mix, though its recent importance will recede as companies seek to refinance.
  • Energy and healthcare tech lead deal activity, with further strong opportunities in infrastructure, business services, and industrials.
  • US and global elections are unlikely to cause significant disruption to deal activity.

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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.

 

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