In 2023, private equity exits plummeted to a 12-year low, an indicator of contracted M&A activity in private markets. This decline, rooted in valuation discrepancies, signals a cautious approach by buyers who are wary of overvaluation amidst a high-interest rate environment. On the other hand, sellers – buoyed by strong earnings and hopeful interest rate cuts – are holding on to portfolio companies for longer.
This impasse not only disrupts the traditional exit timelines but also signals a potential recalibration of valuation methodologies in private equity. Fund managers and operators may need to adapt their strategies, considering both macroeconomic factors and sector-specific performance. In this report, we examine private equity exit trends by region and sector.
2023 Exits by Region
North America and Western Europe continue to dominate deal activity, but their combined share has diminished. The noteworthy decline in North American exits reflects a strategic choice by PE firms to refrain from exiting portfolio companies in the current market environment. Rather, firms are betting on future valuation increases due to a resilient U.S. economy and expected interest rate cuts.
This reveals a strategic patience in North American private equity, contrasting with previous trends of quicker exits during economic upturns. This could imply a shift towards long-term value creation, possibly leading to more mature, well-rounded companies at the point of exit.