Private equity houses ready to offload assets at cut prices as deals appetite returns

Rising interest rates have dampened the appetite for deals in the past year - but private equity houses ready to offload assets at cut prices, a report has suggested

Private equity houses are preparing to offload their assets at cut prices this year as appetite for deals rebounds and pressure builds on investors to begin generating cash, a new report has suggested.

After a slump in dealmaking last year, bankers and lawyers have been gearing up for a wave of private equity-backed assets to come to the market this year as interest rates and markets begin to stabilise on both sides of the Atlantic.

City insiders told City A.M. in December that firms had begun floating “teasers” to the market towards the end of the year to “get ahead” of a flurry of dealmaking.

However, a new report from investment bank Investec has suggested that firms are preparing to shift on their holdings at cut prices as interest rates and economic jitters continue to weigh on valuations.

Almost two-thirds of private equity bosses are pricing in another decline in deal valuations in 2024, according to the Investec study, which polled around 150 leading top managers across the UK, Europe and the US. Some 17 per cent expect a substantial decrease of more than 10 per cent.

“Our research shows that GPs are under no illusions about the challenges that lie ahead,” said Kate Gribbon, head of financial sponsor coverage at Investec. “The market may not match the extraordinary deal volumes and fundraising observed at the top of the cycle in 2021, but transactions are still being done and GPs are successfully closing fundraises.”

Private market valuations have been dragged down by rising interest rates over the past 12 months and left firms reluctant to sell up. According to a separate report published yesterday by Pitchbook, private equity dealmaking slumped to $126.4bn in 2023, down from $178.4bn the previous year.

However, some said they are already seeing a resurgence in appetite for deals this year.

“We are already seeing an increased appetite from private equity funds to achieve exits during the course of the year,” said Neil Evans, a partner at Clifford Chance. “There are various reasons for this, including [limited partner] expectations, tighter liquidity, an uncertain outlook on interest rates and the difficult state of the public markets.”

He added that it “remains to be seen” whether exits are at lower valuations, but his firm was predicting “an exciting year” for investors.