Private equity firms need to make decisive moves on value creation – Bain & Company

June 4, 2024 (Preqin News) – Management consultant Bain & Company cautions that the private equity market will take more time to recover, with the exit market continuing to remain sluggish and a 12-month or more lag between any improvement in exits and a turnaround in fundraising.

Buyout-backed exits remain steady on an annualized basis, Bain reports in its 2024 Private Equity Midyear Report. Exit values are projected to reach $361bn by the end of 2024, a 17% increase on 2023. Nevertheless, this would still be the second-worst year for private equity exit values since 2016.

‘It typically takes 12 months or more for a boost in exits to produce a turnaround in fund-raising,’ said Hugh MacArthur, Chairman of the Global Private Equity Practice at Bain & Company. ‘So even if deal-making picks up this year it could take until 2026 before the fundraising environment really improves.’

The decisive action proposed in the Midyear Report is for GPs to look in the mirror, put their portfolio first, sharpen value creation, and reboot investor relations.

In its Global Private Equity Report 2024, Bain projected a private equity recovery as interest rate cuts seemed imminent. Bain’s midyear report suggests it’s too early to assume a ‘return to normal’, as challenges such as uncertainty over the macro-economic environment, higher for longer interest rates, geopolitical uncertainty, and the exits gridlock remain.

‘With the year having got off to a better start we’ve been cautiously optimistic about 2024’s outlook,’ said Rebecca Burack, Global Head of Bain & Company’s Private Equity Practice. ‘But the challenges facing the industry, for example around interest rates, value creation, and especially the exit logjam and the need to respond to pressure to get capital back to limited partners, mean this year will also be an important inflection point in other ways, too, as GPs look to get the wheel spinning once again.’

Bain finds that the number of buyout deals is still slightly down in 2024 compared with 2023, although global deal value is forecast to hit $521bn at the end of 2024. This would be up 18% compared with 2023’s $442bn, mostly due to a higher average deal size ($916mn in 2024 vs. $758mn in 2023) rather than a greater number of deals.

Overall fundraising figures remain relatively strong, but LPs are increasingly focusing on a few select managers. In buyouts, Bain finds that the 10 largest funds have secured roughly 64% of capital raised so far this year. The largest is the $24bn EQT X fund, which closed in February at its hard cap and accounts for 12% of the $199bn buyout fundraising globally up to mid-May. Consequently, most buyout funds are competing for the remaining 36% of capital and one in five are closing below target, sometimes by over 20%.

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