Private Equity Market in 2023

How’s it going, everyone? Today, we’re talking about the private equity market in 2023!

Why should you care? Because private equity (PE) controls every major brand that you and I interact with!

As a general overview, PE firms go and buy privately held businesses – either a minority piece or the entire business.

For example, Sycamore Partners on Wall Street went and bought Staples, Nine West, Aeropostale, and tried to buy Victoria’s Secret and Kohls.

After purchasing, they “flip” the business and try to make a profit – this could entail new management, rebranding, or consolidating.

We don’t know everything the private markets are up to because they are private.

There has been an interesting trend over the last 12 months: Most companies don’t IPO because they are scared of what the market will actually pay!

Like I said in my YouTube video…

“These markdowns coupled with rising interest rates have put a hold on the market to do deals.”

Most of these PE deals are done through a leveraged buy out (LBO).

An LBO allows a PE firm to use a lot of debt to go and acquire these companies.

For example, for a $1B deal, a firm might only pay $200M and use an LBO to borrow the other $800M.

The problem: Interest rates have increased rapidly, thus increasing the cost of capital!

This has led to a decrease in deal flow.

As stated in my video, Cambridge Associates said…

“Weak economic activity, difficult political environments, and tight credit markets will pressure current valuations and slow investment and realization activity. While public equities reflected these concerns in 2022, private markets reacted more slowly.”

They continued, saying…

“However, in 2023 we do expect capital calls to pick up given GPs have near-record dry powder.”

“Dry powder” is the term used when a firm gets investor commitments that haven’t been deployed yet.

So, there are trillions of dollars of dry powder that is just waiting to be called upon by fund managers.

However, fund managers won’t want to deploy the capital until interest rates go down.

One might think they’ll never come down, but chief economists say that the U.S. gov’t has $7.6 trillion of debt to refinance, so it’s in the gov’t’s best interest to lower rates.

This would be great for fund managers who are itching to use their dry powder.

So, there’s my outlook on the private equity market in 2023!

See what else I had to say about this on my YouTube video.

Or, if you want help starting or scaling your own investment fund, visit Fund Launch!

That’s it for today!


Bridger Pennington

Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!

DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author

Leave a Reply