The Private Equity Resurgence in the US: A 2024 M&A Outlook

The private equity sector in the United States is set for quite the resurgence following a period of contraction in 2023. A report by EY in 2023 stated that PE deal volumes are projected to rebound by 16% and corporate M&A deal volume in the United States (for deals over $100 million) will gradually pick up, rising 20% in 2024 (Daco et al, 2023). Why the sudden recovery? It can be attributed partly to a strategic shift within the US PE sector that has been targeting private companies over public, mid-size over large and focusing on operational enhancements within target companies to drive growth.

The economic landscape has seen an increase in the cost of debt, promoting private equity  firms to shift their growth strategies. Instead of relying solely on low interest rates and market expansions, these firms are now focusing on improving operational efficiencies to enhance EBITDA (Miller, 2023)​. This strategic shift allows PE firms to create value and drive profitability in a more sustainable manner. The targets which best realise this strategy is no longer large sized firms but rather small- and mid-cap. These firms are often better positioned to implement operational improvements, leadership enhancements, and growth-driven acquisitions. Such strategies not only improve EBITDA but also make these firms more attractive at exit, even in a challenging capital markets environment​ (Miller, 2023)​. This segment of the market, which has shown significant revenue and EBITDA growth from acquisition to exit, is expected to continue driving PE performance.

Another area prompting growth in private equity M&A deals is the move towards targeting private companies as opposed to public. The number of publicly traded companies in the US has declined, making private companies an increasingly attractive investment. There are approximately 735,000 private companies in the US, compared to just over 4,200 publicly listed ones. This transition has positioned private equity as a vital source of capital for private companies looking to remain private longer while still achieving growth and development​ (Miller, 2023)​. By targeting private companies, private equity firms can negotiate directly with owners and management teams, fostering stronger relationships and aligning goals more closely compared to public company acquisitions. Moreover, private companies are increasingly interested in private equity partnerships as a way to access the capital and expertise needed to scale without the pressure of quarterly earnings reports and the volatility of public markets. This symbiotic relationship has further fuelled the attractiveness of private companies as prime targets for M&A deals in the private equity sector (Thompson, 2024).

An additional factor driving the increase in private equity M&A deals is the focus on high-growth sectors such as the technology sector. The tech sector continues to be a magnet for private equity investments due to its rapid pace of innovation and potential for high returns. Advances in artificial intelligence, cybersecurity, and financial technology are at the forefront of this growth, creating lucrative opportunities for PE firms. In the AI sector, the acquisition of Blue Prism, a leading robotic process automation company, by Vista Equity Partners for $1.5 billion exemplifies the focus on AI-driven technologies that enhance operational efficiencies (TechCrunch, 2022). Fintech in particular is revolutionising the financial services industry by offering innovative solutions in payments, lending, and wealth management, attracting substantial investment from PE firms (EY, 2023). In the fintech sector, a notable deal is the acquisition of Worldline's payment terminals business by Apollo Global Management for $2.3 billion in 2022 (Reuters, 2022). Another prominent example is the acquisition of the UK-based digital bank OakNorth by the PE firm GIC, demonstrating the attractiveness of digital lending and wealth management platforms (Finextra, 2019).