Private Equity Investors Optimistic as Activity Picks Up in Spring

Private equity investors are seeing a resurgence in activity this spring, despite interest rates remaining at elevated levels that have hindered deals in recent years. Jeff Helminski, founder and managing partner at Auxo Investment Partners, has noticed a significant uptick in activity since mid-March, with both volume and quality of deals improving.

Helminski attributes this increase in activity to greater certainty in the U.S. economy’s direction and a general acceptance that interest rates are unlikely to decline significantly in 2024. This has prompted more sellers to enter the market, as they have been waiting for a better rate environment and improved valuations.

Other industry experts, such as Jeff Johnson from Blackford Capital, share a similar optimistic outlook for the second half of the year. While there are still some challenges in the marketplace causing deals to take longer to close, there is a growing interest in manufacturing businesses among investors.

Despite a slowdown in M&A activity in 2023 due to economic uncertainty and high material costs, private equity investing is expected to pick up in 2024. PitchBook reported 2,105 U.S. private equity deals in the first quarter of 2024, signaling a positive trend in deal volume and valuation multiples.

Investors are hopeful for sustained interest rate cuts this year, which could provide a psychological boost to the market and encourage more investment. While any downward movement in interest rates is welcome, a full point decrease is needed to have a meaningful financial impact, according to Helminski.

Overall, industry experts anticipate a more active private equity market in 2024, with more strategic buyers entering the market and increased deal flow in the second half of the year. Despite some challenges, such as tightened credit conditions and market volatility, the lower middle market has remained resilient, with bolt-on acquisitions driving activity.

With an estimated $1 trillion in capital available for investment, private equity funds are poised to drive activity in the market. The industry is expected to see increased investment as investors become more flexible on their terms and take advantage of available opportunities.