Private Equity Slowdown
In the midst of a challenging interest rate environment, private equity firms are finding motivation to pursue deals due to the potential benefits in purchase prices. Pete Stavros, KKR’s Global Co-Head of Private Equity asserted that the current period presents an excellent opportunity for deal-making. He suggested that caution should be exercised when capital is abundant, and access to debt is unlimited. In such times when credit markets are thriving, raising the bar and being more cautious becomes necessary.
The private equity fundraising landscape has experienced a notable slowdown, largely influenced by a series of aggressive interest rate hikes that led to soaring borrowing costs. According to S&P Global Market Intelligence, global private equity funds raised $444.65 billion in the first half, representing a significant 20.5% year-over-year decline. Stavros explained that when public markets are volatile and credit markets tighten, better deals with higher returns tend to materialise. History supports this logic, as purchase prices become constrained when borrowing capacity is reduced, and borrowing costs increase. He emphasised that the current climate is favourable for seizing opportunities.
KKR recently announced its latest exit deal involving RBmedia, an audiobooks publisher that was successfully sold to investment firm H.I.G. Capital. Notably, the deal included an employee stock ownership program. Stavros cautioned against basing investment decisions on market environments and encouraged a balanced approach. He revealed that KKR has implemented a rigorous process to avoid both excessive and insufficient deployment of capital in any given year. Regarding private equity mergers and acquisitions, Stavros advocated against attempting to time the market. Instead, he stressed the importance of a strategic, long-term approach to investment. What do you think of the current state of private equity markets? And how will it change over the next few years?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.