Following last year’s predictions for the end of 2022, here’s a review of current Private Equity (PE) trends and predictions for the coming year in a volatile market.
PE Trend Overview of 2022
Despite an unexpected boom in deals in H1, as predicted, the global PE industry experienced a slowdown in the second half of 2022.
Rising interest rates, inflation and geopolitical turmoil all contributed to the decline in activity as PE firms across the globe cautiously waited out the uncertainty.
Despite predictions to the contrary, thankfully a recession never materialised in 2022. However, talk is still rife regarding a recessionary period this year in Europe, UK and US markets with commentators and analysts at odds over the potential timing and scale of any potential downturn.
Tech dominates M&A market
Following an astonishing 2021, the global M&A market cooled off in 2022. At the beginning of the year, the value of large deals fell by almost a quarter compared to the previous year while deal volume dropped by 12%.
While this may seem alarming, the numbers from last year match or even surpass those from pre-pandemic periods.
The tech, media and telecom sector (TMT) continued to dominate M&A activity in 2022, accounting for almost 30% of the deal value share. Runner-up sectors, real estate and industrials, trail behind at 13% and 11% respectively.
ESG expectations intensify
The continued focus on ESG investing was a key theme of 2022. As the public and private sectors become more conscious of their environmental, social, and governance responsibilities, companies are under increased scrutiny to integrate sustainability into their strategies.
Greenwashing and lack of transparency by companies led to increased calls for increased oversight and accountability – something that will continue to gain traction this year.
Exits: secondaries and continuation vehicles favoured
The lack of IPOs in 2022, secondaries were one of the preferred strategies for PEs looking to repatriate capital back to their investors. Continuation vehicles were also popular as PEs looked for long-term strategies and flexible exit options.
PE Trends 2023 Predictions
Profitability central to decision-making
Increased overheads, rising costs and tight profit margins mean that cost-benefit analysis will be at the centre of decision-making for PE firms in 2023. PE firms will be looking for savvy investments with a strong record of profitability and cost optimisation.
Focus on value creation
Amidst a challenging macroeconomic environment, PE firms are expected to turn their focus to value creation. Expect to see more investments in digital technologies such as AI, data analytics, and cloud computing – all drivers of operational efficiency.
Continued ESG focus
In 2023, PE firms will continue to prioritize ESG metrics and invest in companies that demonstrate strong environmental, social and governance values. To ensure that these metrics are truly implemented and accurately measured across their investments, they will increasingly implement operational change initiatives.
This comes alongside intensifying global regulatory scrutiny on greenwashing and false claims from the SEC and the EU’s Corporate Sustainability Reporting Directive (CSRD).
Increase in distressed debt investing
In the face of macroeconomic headwinds, there is a growing opportunity for PE firms to invest dry powder in distressed and undervalued debt securities. PEs need to be nimble and ready to act quickly on any such deals.
To expedite the process, investors are expected to turn to AI to help identify attractive opportunities, conduct rapid due diligence and determine a viable price.
Tech, tech and more tech
According to market research by Morrison Foerster, over 80% of PE firms expect both tech M&A deal values and volumes to increase over the next 12 months. Buoyed by a secure amount of dry powder, PEs will be looking to invest in disruptive technologies that can give them the edge over their competition. The ongoing consumer shift to digital services and the exploding use of data analytics will also drive PEs to new opportunities in 2023.
At Symanto, our suite of flexible and highly accessible tools can help private equity firms and their portcos get unique, real-time insights into a range of areas including market trends, customer sentiment and employee engagement.
Our technologies are used to spot value-creation opportunities, conduct rapid due diligence, and measure market sentiment using text analysis from social media, review data, CRM data and more.
For example, our aspect-sentiment technology enables you to analyse customer sentiment by topic, and easily compare it against your portco’s main competitors. Symanto technology turns unstructured data into intuitive data visualisations to enable you to quickly and easily identify challenges and opportunities for growth.
The PE Trends for 2023 paint a picture of an increasingly complex and competitive environment for private equity firms.
In light of the continued uncertainty in the macroeconomic climate, it is essential that PEs adopt a smart approach to investing that focuses on value creation, cost-effectiveness, and efficient exits.
Technologies such as AI will continue to be important tools for PEs to tap into the data-rich landscape, allowing them to identify attractive opportunities and exit options. Ultimately, these strategies are likely to be key factors in determining success for PE firms in 2023.
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By leveraging Symanto technology, investors can stay on top of market and consumer trends and gain insights that allow them to make informed decisions and generate maximum value from their investments.
If you would like to learn more about how Symanto helps companies make better-informed, data-based decisions, get in touch.