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Private Equity Valuations: Q2 2024 Summary

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Last Updated: February 29, 2024

Our analysts have compiled publicly available information about PE valuations as of Q2 2024, including the industries with the most deal activity and highest deal value. The chart below identifies overall trends in PE activity, illustrating the total value of all deals as well as the total number of deals across all industries between Q1 2020 and Q2 2024.

U.S Private Equity Valuations: Q1 2020-Q1 2024

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The sections below dive deeper into what to expect from private equity valuations in Q2 2024, discussing the conditions that led to the moderate increases in deal value since they hit a low one year earlier. We also provide an analysis of the conditions owners of private companies will find themselves in when negotiating with PE firms in 2024.

PE Activity Trends Q1 2024

PE saw a substantial slowdown between H2 2022 and H1 2023 with 17% fewer deals across all industries and 27% lower valuation multiples compared to the previous period. S&P Global Market Intelligence data suggest that the majority of these challenges came from “misalignment between buyer and seller,” meaning buyers came into the M&A process believing their company should be valued closer to where it was 18 months prior rather than adjusting to the current realities of the market. There was also a lower appetite for risk on the part of PE firms given rising interest rates and deflated consumer confidence.

Most PE deal activity appears to have taken place within the tech sector, which is typical, and tech’s share of deal activity has remained relatively constant throughout the economic downturn. PE’s continued interest in tech in Q2 2024 isn’t surprising, given the sector’s earning potential and concurrent boom in generative AI and clean energy technology. 

Private Equity Activity by Sector – Q1 2024

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Based on this data, the lower volume and value of PE deals isn’t likely to last more than another 2-3 quarters. Several sources indicate a historically large amount of “dry powder” (funds allocated for the purposes of acquiring companies but not yet committed) in PE firms. Current estimates on the total amount vacillate between $2-3.5T, with industry giant Blackstone alone holding ~$44B. 

Despite all that excess capital combined with a projected drop in interest rates in H2 2024, valuation multiples aren’t likely to rise substantially until the end of the year as buyers wait out geopolitical uncertainties (e.g., 2024 election, global conflicts). 

PE Valuation EBITDA Multiples by Industry, Q1 2024

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However, the PE capital allocated in the latter half of 2024 may flow to a few new sectors. A survey taken by ~200 PE firms suggests an increased interest in traditional service businesses such as wealth management, consulting, and home services, creating a “long tail” of disparate business targets in addition to the mainstay of tech. 

Predicted High-Performing Sectors in Private Equity – H1 2024

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What Do These Trends Mean?

Between a settling economy and the large amount of cash waiting to be utilized, the private equity M&A environment in Q2 2024 is complicated. Here are our predictions: 

  • Interest rates will continue to drive multiples down, but only slightly. Because PE firms often engage in leveraged buyouts that rely on a large amount of debt, much of their existing dry powder will have to be utilized to manage that debt rather than offering higher payouts. However, the relatively sparser deal flow over the last year, as both private companies and PE firms watched macroeconomic conditions, has created a latent appetite for new deals.  
  • “Recession-proof” sectors will be more favorable. Macroeconomic instability over the last year has lended itself to higher levels of buyer uncertainty that could be easily affected by further downturn. Healthcare, energy, and consumer essentials are more likely to be targeted by PE due to their consistency in the face of previous economic crisis. 
  • Flexible deal structures will continue until the economy re-stabilizes. Inflation has affected many companies’ profit margins over the last year, making them less attractive to PE firms. As a result, flexible deal structures (e.g., distressed M&A, asset sales, PIPE investments), as well as deals consisting of larger equity payouts, are likely to take a higher share of PE activity over 2024.
Related: See our report on the Top M&A Advisory Firms in the US

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Evan Bailyn

Evan Bailyn is a best-selling author and award-winning speaker on the subjects of SEO and thought leadership. Contact Evan here.