Private Equity Exits Sink, Financing Warning Lights Flashing Red For CEOs
The pandemic and interest rate bullwhip continue as private equity continues to have challenges valuing deals in this environment which has led to a relative pullback in transactions.
The WSJ reports a few items, as measured on a y/y basis from the first half of the year:
* The number of take-private transactions (of the type that happened with companies like Avalara and Zendesk) has dropped by 40%, and the value has reduced by 20%.
* Overall both the deal count and value is down by 30%
* The value of exit deals in the third quarter 2023 was down to the lowest value since 2010, down about 46% year over year.
In its place, growth equity financed by private equity funds has seen a slight uptick. Putting money to work with existing winners, this is one of the only private equity categories experiencing growth. Overall volume is still down, but this is the growth pocket.
I can see this in my current business as well. From a middle-market consulting point of view, the industry seems to be performing fewer deals, and bringing more partners in-house on a relative basis. Part of that is talent. As there is more talent looking for stable jobs, many digital executives have gone inside private equity in the past year, as opposed to remaining independent.
What does this mean for you?
Overall, the IPO market is telling us that it is rewarding very high quality listings. The Private Equity market is telling us it is willing to finance winners, but not create exits for challenged players.
There is simply too much downside valuation risk out there. The message for financed SaaS Companies and brands is simple: don't expect the situation to change soon. In fact, the longer interest rates stay elevated, it could keep getting worse before it gets better.
If you have been considering deeper changes to put yourself on a better profitability footing, even all the LAGGING data (which all of this is) is now supporting your decision.
Which means, you are overdue to make those changes. What are you waiting for?
