Private equity finds stability but momentum remains elusive, shows report

The global private equity (PE) sector appears to have found some stability after a two-year slump, but a robust recovery remains uncertain, according to Bain & Company’s 2024 Private Equity Midyear Report.

While PE activity has arrested its decline, it continues to lag behind historical norms, particularly in light of the $3.9tn in available capital, including $1.1tn in uncalled capital in buyout funds.

Bain’s report suggests that while the worst may be over, the path to a full resurgence is still fraught with challenges.

The report highlights that the sharp decrease in deal-making and exits over the past two years has largely plateaued in the early part of 2024.

By May 15, the global buyout deal count was down just 4 per cent on an annualised basis compared to 2023, indicating that the market may end the year relatively flat. Despite this, the value of global buyout deals is projected to rise to $521bn, an 18 per cent increase from last year, driven primarily by larger deal sizes rather than an increase in the number of deals.

Similarly, exits, which had seen steep declines, have stabilised.

The number of buyout-backed exits is expected to remain flat this year, with exit values trending towards $361bn, a 17 per cent increase from 2023. However, this still marks 2024 as potentially the second-worst year for PE exit values since 2016.

Bain’s report also points to a cautiously optimistic outlook among general partners (GPs), with many observing “green shoots” of recovery in deal pipelines.

This marks a shift from Bain’s March survey of 1,400 PE participants, where a significant portion did not expect a resurgence in deal-making until late 2024 or 2025.

“As we progress through 2024, we are seeing encouraging signs of recovery in the private equity sector,” said Gregory Garnier, Bain & Company’s regional head of private equity and sovereign wealth fund practices in the Middle East. “However, the industry faces several significant challenges, including managing interest rates, enhancing value creation, and addressing the backlog of exits.”

Private equity sector must adapt to new trends

The report emphasises that the PE sector must adapt to a new market reality characterised by persistent macroeconomic uncertainties, elevated interest rates, and geopolitical turbulence.

Bain’s Hugh MacArthur, chairman of the global PE practice, warned that a return to pre-slump activity levels may take time, with fundraising likely remaining constrained until at least 2026.

The report also underscores the ongoing gridlock in PE exits, which continues to pressure firms to return capital to limited partners (LPs). The slow pace of exits is affecting fundraising, with LPs increasingly focusing their commitments on a select group of favoured funds. The trend has led to a bifurcation in the market, where a small number of large funds dominate capital inflows, while many others struggle to meet their targets.

While there are signs of improvement, such as the reopening of the initial public offering (IPO) market, the overall exit environment remains challenging. Bain notes that the IPO market, despite several large exits in Europe, still represents a small fraction of total exits.

“The current stagnation in private equity exits is putting significant pressure on the industry to return capital to investors,” said Elif Koc, Partner at Bain & Company Middle East. “As limited partners demand more liquidity, private equity firms must focus on navigating this challenge to secure new capital and manage existing assets effectively.”

With interest rates expected to remain elevated, PE firms face additional operational challenges, particularly in managing debt-laden portfolio companies. Bain advises that firms need to take decisive action to meet LPs’ expectations and enhance value creation within their portfolios to remain competitive in a challenging market.