One of the big stories of 2022 was the collapse in deal activity. IPOs, M&A, and corporate bond deals all shriveled as rising rates and economic uncertainty clobbered markets. But remarkably, private equity buyouts just wrapped their second-busiest year in more than a decade — check out that chart above.
The big picture: This is one example of the explosive growth of private markets — for both equity and debt — a trend that was well underway even before the pandemic.
How it works: PE firms raise money from institutions and wealthy individuals, and in turn, use those funds as down payments to buy companies.
- They typically borrow heavily from investment banks to cover the rest of the purchase price for these deals, known as leveraged buyouts (LBOs) — just like a mortgage on a home.
By the numbers: PE deal volumes were, of course, down from 2021 — a year that may, in time, turn out to be a colossal Fed-driven anomaly. But last year’s U.S. deal value was still 61% higher than the pre-pandemic average (2013-2019).
What happened: PE funds are sitting on record dry powder that they need to deploy into deals — and public companies got a whole lot cheaper to scoop up during 2022’s bear market.
- Plus: Private debt funds stepped in to finance the deals when the corporate bond and bank loan market started to seize up around midyear.
- The private debt market "is definitely what kept LBO volume going in Q3 and Q4,” Susan Kasser, Neuberger Berman’s co-head of private credit, tells Axios.
- As PitchBook wrote last month: “Of the 26 take-privates announced in the US and Europe since early June 2022, not a single one has been funded by banks; they are relying instead on private debt funds or all-equity structures.”
What we’re watching: The environment may be A-OK for acquisitions, but PE returns are all about the exits — and that’s a little tougher, considering falling valuations and the disappearing IPO market.
- PitchBook estimates that PE exit activity — when firms sell a company and actually realize a profit (or loss) — last year fell to a low not seen since the financial crisis.