Private equity towards long-term growth
Despite the sharp slowdown in operations, exits and fundraising, triggered by a series of interest rate hikes by the Fed in response to the sharp rise in inflation, 2022 turned out to be the second-strongest year in private equity history. The data emerges from the 14th annual report of Bain & Company.
Although the setback, recorded from June onwards, Bain’s study highlights how the fundamentals of private equity remain solid, unlike what happened with the financial crisis. This is also demonstrated by the record figure of 3,700 billion dollars of liquidity with which the year ended. “While 2022 has seen a global slowdown in private equity, with total deal value declining by 35% – comments Roberto Fiorello, senior partner and Italian manager of the private equity of Bain & Company – 2022 was a record year in Italy with a buyout value of 64 billion dollars, against the 36 recorded the previous year. As in previous years, Italian deals last year reflected the country’s broad spectrum of economic sectors. In addition to transport, the tech, healthcare, consumer and industrial sectors stand out among the sectors”.
The value of investments
After setting a record high in 2021, then, with $1 trillion worth of completed deals, capping a stunning 12-year industry growth cycle, the sudden slowdown in activity in 2022 saw global value of acquisitions (excluding add-ons) drop sharply, by 35%, to close the year at 654 billion dollars. The total number of operations it contracted by 10%, with around 2,300 deals, mainly thanks to the extraordinary momentum of the first half of the year. The sharp decline in activity and transaction value in the second half was felt across all regions and most sectors, with a particular decline in Asia, due to repeated market closures due to the measures to contain the Covid-19 .
The trend reversal has also affected growth equity and late-stage venture investments, previously very active segments. The total value of transactions in these segments it fell 28% to $644 billion. Exits contracted even more than investment activity: buyout-driven divestitures fell 42% to $565 billion, while growth equity outflows plunged 64% to $312 billion.
But while 2022 has seen a global slowdown in private equity, with total deal value declining by 35%, 2022 was a record year in Italy with a buyout value of $64 billion, against the 36 recorded the previous year. As in previous years, the Italian deals reflected the country’s broad spectrum of economic sectors. In addition to transport, the tech, healthcare, consumer and industrial sectors stand out among the sectors.
The next challenges for private equity funds
Global energy transition and Web3: these are the two challenges that the funds expect. Pressure on private equity firms to decarbonise portfolios has intensified in 2022, with regulators, consumers, B2B clients and investors stepping up their calls for change. At the same time, the race to develop alternative energy sources and other low-carbon solutions is creating a generational opportunity to put capital to work, which must be nurtured by funds by developing skills and networks.
Web3 technologies are also destined to represent, in the next 10 years, a far-reaching trend capable of have a significant impact on companies and markets: for many funds it is time to build know-how on this issue and evaluate how to exploit technological changes. “For private equity companies – concludes Fiorello – it will be essential to be able to adapt to these new macroeconomic pressures, if they want to win in this difficult context. Operators should look to target customer groups and sectors with less price sensitivity and focus more on organic business growth, in light of challenges related to emerging technologies, demographic trends and weaker GDP growth.