Private equity gets ready for game day

In August 2023, Luxembourg’s inflation rate jumped to 4.2%. This latest hike is one of many uncertainties surrounding the future direction of interest rates and the broader economy. In conjunction with other factors such as cautious banking practices, rising labor costs (including recent salary indexations), and energy costs, the market has shown more caution in merger and acquisition activities.

Nevertheless, many private equity (PE) portfolio companies in Luxembourg remain highly active, staying true to their original investment strategies and bolstering their positions through strategic acquisitions. Furthermore, these companies are placing a strong emphasis on seamless integration, cost control, and efficient management of working capital. Leaders in the private equity sector are aware that the much-anticipated recession may already be in the rearview mirror, and as market conditions stabilize, buyers will pursue high-quality assets, eager to deploy capital.

Our latest report anticipates a stabilization of inflation and debt markets, with an additional rate hike expected in 2023. As asset valuations rebound and investors seek opportunities to utilize their available funds, we anticipate a resurgence in lower mid-market transactions during the fourth quarter of this year, followed by an upswing in larger deals in the first and second quarters of 2024. Subsequently, we predict an increase in portfolio company exits during the latter half of the year.

Read the report to discover the efforts of three prominent PE teams and explore their strategies to create value within their portfolio companies, even as holding periods extend.

This article was originally published by KPMG US