M&A markets do not need ultra-low interest rates and a bull market to flourish, but they do need economic and political stability, and over the last 12 months, both have been in short supply. There are a few variables ahead that will inevitably have an impact on the market, with major elections set for the US, UK and Europe, and ongoing geopolitical uncertainty across the globe.
Whilst political uncertainty may well feature in 2024, UK dealmakers are hopeful for economic stability, aided by falling inflation and a steadier, falling interest rate environment. Financing costs, however, are likely to remain higher than we’ve seen for a long time. Against this mixed backdrop, the private equity industry itself looks set to experience structural changes, which could lead to consolidation.
That being said, overall the fundamentals that underpin the private equity market are still very much in place. Capital is available, valuations have started to normalise and the debt markets are still supportive - albeit with greater scrutiny and higher costs. This, together with the stability that bolsters the confidence of Boards, Investment Committees and Credit Committees, should pave the way for a more positive dealmaking environment in 2024.
