Deal flow projections for 2024 and 2025:
Tailwinds will increasingly outweigh headwinds in the next two years.
Since the pandemic ended, we have seen private equity (PE) investment activity buffeted by strong tail and headwinds, which have played out in different measures as time passed. In the last 12 months however, the headwinds have been particularly strong which has seen 2023 deal count drop from one quarter to the next – with 2023 Q1-Q3 down 14% from the same period in 2022.
Overall, the winds are expected to balance each other out in 2024, resulting in a steady but increasing pace of PE deals as the tailwinds strengthen, with more positive momentum in 2025. We expect total deal value to follow the same trajectory.
But as those headwinds start diminishing and with some assistive tailwinds, greater certainty is being provided to an asset class primed for activity. As a result, as we head into 2024, PE deal count in the UK will not continue that decline, but rather stabilise in H1 and start rising towards the end of the year, continuing upwards in 2025.
Factors such as reducing inflation, levelled interest rates, significant dry powder, pent-up deal flow, and a narrowing valuation gap are all contributing to the positive momentum.
However, weak economic growth, and inflation and interest levels still high on a historical basis will dampen activity.
Overall, the winds are expected to balance each other out in 2024, resulting in a steady but increasing pace of PE deals as the tailwinds strengthen, with more positive momentum in 2025. We expect total deal value to follow the same trajectory.
The US will see the same shift in the winds, but the tailwinds will get stronger sooner, so we expect deal count (and value) to start rising in Q2 2014.
