The U.S. Middle-Market Private Equities (PE) witnessed a multitude of deals in the market coupled with record-breaking valuations in the last few years. The immediate future of PE, however, appears to be in flux as our survey participants believe the economy may continue to be impacted by rising interest rates, inflation, and the possibility of a recession.
The fund managers whom we surveyed indicated an overall bearish sentiment for H2 2022 with a slight decline as compared to H1 2022. They believe that macroeconomic factors such as public market drawdown, the rising interest rate coupled with fear of recession, and disruptions to the supply chain are behind this consensus. Hence, in H2 2022, the investors spent most of their time and efforts on portfolio management activities to navigate their portfolio companies smoothly through challenging macroeconomic conditions. They also focused on finding ways to increase the value of potential investments by targeting struggling businesses that could be acquired at a bargain. SPACs, which were in trend in the M&A market during the last couple of years, were noticeably absent in 2022.
In H1 2023, respondents expect the quality of distressed assets to improve and hope that the valuation multiples may decrease. This is, however, shadowed by expectations around increasing deal closing timelines and constrained access to capital and financing around new initiatives. From an overall perspective, the sentiment remains similar to H2 2022. As per the survey, healthcare and technology may continue to be favorable investments in 2023.