Data provider Preqin has published its Deal Flow Monitor: Q1 2024 report, examining trends in global sponsor-backed deal-making.
The report finds that while both buyout deal volume and value has decreased from the pandemic high in 2021 of 14,452 total deals closed, deal volume is beginning to normalise at a lower level with 1,780 deals in Q1 2024 (a 14 per cent decline from Q4 2023).
Preqin writes that this normalisation is comparable to that witnessed between 2018 and 2020, when the quarterly average deal volume was 1,930. However, in the long term, Preqin analysts are optimistic about sponsored buyouts, as market share has doubled in over a decade and is expected to continue to grow compared to non-sponsored buyouts that don’t include private equity.
Key report facts:
Private capital deal value: Deal value fell by USD195.3 billion from Q4 2023 to Q1 2024, from USD423 billion to USD227.7 billion, respectively.
Private equity buyout deal activity appears to be normalising at lower level: In Q1 2024, 92 per cent of all deals were through the small and mid-market (<USD100 million – USD999 million) – higher than the five-year average of 89 per cent as higher interest rates and so elevated financing costs persist. Overall, there were 1,210 fewer deals (-14 per cent) from Q4 2023 to Q1 2024. Buyout deal value decreased by 55 per cent from Q4 2023 to Q1 2024, falling from USD209.2 billion to USD94.7 billion, respectively.
Private equity buyouts by sector: Industrials overtook Information Technology (IT) as the sector with the highest deal value globally in Q1 2024. Industrials accounting for USD28.4 billion in deal value in Q1 2024 (30 per cent of total) compared to USD21.1 billion in Q4 2023 (10 per cent of total). The latter took a hit through declining valuations and lower deal leverage and may put downward pressure on future deal value as the fall from the highs of late 2021 and early 2022 continue.
VC deal making forecast: Whilst VC dealmaking continues its downward trend in Q1 2024, Preqin data shows that early-stage deals are becoming more attractive. Deals under USD100 million accounted for 96.1 per cent of the overall VC deal market in Q1 2024 and Preqin analysts see this trend continuing owing to longer incubation periods and less sensitivity to valuations, especially in light of down rounds’ current prevalence.
Gerard Minjoot, Analyst, Research Insights, at Preqin says: “As the market continues to navigate the uncertain macroeconomic environment, deal activity appears to be transitioning into a new normal where smaller deal sizes will be more apparent. Yet, we remain optimistic. Over half of private equity managers and 68 per cent of venture capital managers plan to deploy more capital in 2024, compared to 44 per cent and 36 per cent of them, respectively, in 2023. In the long run, sponsored-back buyout deals have grown over the last decade and will continue to grow in the future.”
