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Private equity evolves as it addresses structural challenges


May 17, 2024

Most private equity (PE) firms probably didn’t mind putting 2023 in the rear-view mirror, even with surprisingly positive macroeconomic drivers.

Global growth did not slow as expected. At 2.9%, the rate exceeded the World Bank’s estimate of 1.7% to start the year.Fueled by a strong US economy, the threat of global recession subsided.ii Inflation cooled,iii slowing the trend of interest rate hikes and increasing expectations for rate cuts in 2024.

Within PE, dealmaking did not recover the same way, but is showing signs of increased activity. Buyouts dropped 15% by volume and 20% by total capital in 2023 from 2022 — which was already a down year from 2021. This was followed by a 6% year-over-year growth in estimated PE deal volumes in the US in Q1, with $126 billion deployed and $70 billion of capital raised for buyouts. In Europe, the first quarter of 2024 saw record capital fundraising equal to roughly half of 2023’s total.iv

Exits, however, were challenged, with total exit volume falling 16% year-over-year in 2023 and another 11% year-over-year in Q1 this year.v This led to a 48% decrease in distributions from December of 2022 to September of 2023,vi raising the hackles of many a general partner (GP) and their limited partners (LPs). Institutional debt became more challenging than ever. For the first time in many years, PE firms wrote equity checks larger than the debt portion of investments.

In 2023, equity contributions for LBO deals exceeded debt.
In 2023, equity contributions for LBO deals exceeded debt.

Structural vs. cyclical challenges

While PE firms are used to adapting their strategy to cyclical challenges, many firms kicked off 2024 facing additional, structural challenges:

  • After many years of growth, firms are reaching limits to their direct buyout teams and capabilities. As a response, they’re adding capacity to their operating capabilities, sharpening their investment professional teams by geography and vertical, and grappling with the requirements of deal sizes to deploy capital effectively.

  • By some estimates, PE buyout firms collectively now have ~$1.2 trillion in dry powder, representing two years of capital needing deployment.vii

  • Firms have more portfolio assets than ever before. The share of buyout-backed companies with a holding period above five years topped 31% in 2023, up from a low of 15% in 2018.viii

  • Many of those assets are hitting a maturity wall. Only 24% of companies acquired via leveraged buyout in 2019 have exited, compared to a baseline rate of ~40%,ix putting more pressure on firms to find exit options or generate more distributions to return to LPs.

Addressing these structural challenges is not as simple as flipping a switch to hire more professionals or getting bigger deals across the line. Identifying strong talent in a highly competitive market isn’t easy, required capabilities are evolving and developing talent takes time. Moreover, the pool of bigger assets ready for standalone acquisitions has been shrinking. Since 2013, the number of $2-5B revenue private companies has decreased by 12% and $1-2B revenue companies has decreased by 15%.x

As much as these obstacles can be overcome, most other firms can do the exact same thing in the drive to get bigger — leaving everyone in a race for the same talent and the same assets.

Between 2013 and 2022, the number of non-North-American private companies decreased 18%
Between 2013 and 2022, the number of non-North-American private companies decreased 18%

How firms are responding

Some firms recognize these challenges and have evolved their investment approach. Specialist and mid-market firms mostly sharpened their focus, while bigger GPs have further diversified their strategies and assets.

Last year’s standout in alternative assets was private credit, with $190 billion raised and clear indications from industry heavyweights that they’re leaning into the strategy.xi Firms are entering into the capital structure in different ways to position themselves as near-term providers of stability and long-term growth partners. Another notable performer has been infrastructure, where despite a down fundraising year of $87.7 billion, firms invested $420 billion into deals.xii

Within traditional buyouts, firms looked at even more assets with a broader aperture. Although these deals often come with greater complexity, firms have developed their internal teams, adviser networks and operating playbooks to handle it. We see this most clearly with carveouts. It’s a challenging investment type that demands intensive work early in the hold period and where value can be unlocked using a wide range of operational value creation levers. The share of PE-backed carveouts across all deals was up significantly, from 7.5% in Q1 of 2022 to 10.7% in Q4 of 2023, to 12.6% in Q1 of 2024. Global carveout deal volume went up 179% and capital invested rose 136% year-over-year in 2023.xiii

A positive emerged from challenges: to get deals underwritten, firms needed to find higher-quality assets and routes to greater operational value creation.

It’s time to rethink due diligence

83% of leaders say their due diligence approach has substantial room for improvement. Three steps promise to turn traditional due diligence into a more dynamic, value driven process.

Going for quality

The discipline and rigor required throughout the pre-deal process has increased — a topic we’ll explore further in our research this year. Firms are looking for ways to use technology and data to identify value creation opportunities. As they dig deeper into targets and start value creation planning earlier, firms can hasten time to value and take on bigger transformations during the investment lifecycle.

Firms vying to be tomorrow’s winners are looking across their capabilities, capacity, governance and structure. Whether in leveraged buyouts or other alternative assets, we see three factors that can help make this journey more profitable:

  1. Investing in firm capabilities. Great people alone are not enough. Firms need to invest in technology to better leverage their institutional knowledge base and track record. Using AI and data analytics, firms see how they can bring network effects to their widening portfolios and investment styles.

  2. Driving sustainable change. Leadership and change management will become more important than ever. Why? Because PE firms will look to pull a greater number of operational value levers in a short period across a wider number of PortCo functions. Strong leadership and change management can guide talent along this journey to build lasting change.

  3. Expanding their advisor networks. As firms look at a wider range of strategies, deal types and operational value creation levers, they should extend their networks to bring qualified specialists and tacticians into the full deal lifecycle. A provider of strategic managed services, for example, can bring due diligence simplification and drive faster value creation from Day One.

What’s in store

I won’t pretend to know exactly what is in store for the markets in the coming months. If I could do that well, I’d be on a large boat right now! But this structural evolution in PE and alternative assets will continue to drive firms to improve. Structural challenges like competition for good assets, tougher exits environment, increased cost of capital and more stringent underwriting will only grow.

Firms that address internal, structural challenges beyond the cyclical challenges stemming from the macroeconomic environment and geopolitical uncertainty will be better off. Aided by the right partners, they can build a competitive advantage that spans geographies and industries, setting themselves up for success in both capital deployment and value realization.



The World Bank, Sharp slowdown in growth could be widespread, increasing risks to global economy, January 10, 2023; The World Bank, Global economy set for weakest half-decade performance in 30 years, January 9, 2024; FitchRatings, Global economic outlook, retrieved April 23, 2024.

ii FitchRatings, World growth to fall sharply in 2024 but US recession avoided, December 8, 2023.

iii IMF, Global economy remains resilient despite uneven growth, challenges ahead, April 16, 2024.

iv Pitchbook, Q1 2024 Global PE First Look, April 2, 2024, Q1 2024 US PE Breakdown, April 9, 2024, Q1 2024 European PE Breakdown, April 16, 2024.

v PitchBook, Q1 2024 Global PE First Look, April 2, 2024.

vi Preqin, 2024.

vii Preqin, 2024; Pitchbook, 2024.

viii Pitchbook, Q4 Quantitative Perspectives November 13, 2023.

ix Ibid.

x Accenture analysis using CapitalIQ data, 2024.

xi PitchBook, 2023 Global Private Debt Report March 20, 2024.

xii S&P Global, Infrastructure fundraising poised for recovery after slow 2023, February 12, 2024.

xiii PitchBook, Q1 2024 US PE Breakdown April 9, 2024; Preqin, 2024.


Jay Scanlan

Senior Managing Director – Global Lead, Private Equity