Buyout dealmaking adjusts to ‘new normal’ of smaller deals

While buyout deal volume and value have declined from the 2021 pandemic peak, deal volume is stabilising at a lower level, according to a report on trends in global sponsor-backed deal-making.

According to alternatives data provider Preqin’s Deal Flow Monitor: Q1 2024 report, while both buyout deal volume and value have declined since the pandemic high of 14,452 total deals closed in 2021, deal volume is stabilising at a lower level.

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In Q1 2024, there were 1,780 deals, marking a 14% decline from Q4 2023. This current normalisation aligns with trends observed between 2018 and 2020, when the quarterly average deal volume was 1,930. Despite this decline, analysts remain optimistic about the long-term prospects of sponsored buyouts, noting that market share has doubled over the past decade and is expected to continue growing compared to non-sponsored buyouts.

Key findings from the report include a sharp drop in private capital deal value, which fell by $195.3 billion from Q4 2023 to Q1 2024, dropping from $423 billion to $227.7 billion. The report also highlighted that 92% of all buyout deals in Q1 2024 were within the small and mid-market range ($100 million – $999 million), an increase from the five-year average of 89%. The total number of deals decreased by 1,210 (-14%) from Q4 2023 to Q1 2024, with buyout deal value plummeting by 55%, from $209.2 billion to $94.7 billion.

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Sector-wise, the industrials sector surpassed IT as the leader in deal value globally in Q1 2024.
In venture capital (VC) dealmaking, the trend continued downward in Q1 2024. However, early-stage deals are becoming more attractive, the analysts noted, with deals under $100 million making up 96.1% of the overall VC market in Q1 2024. Analysts predicted this trend will persist due to longer incubation periods and less sensitivity to valuations, especially in the context of the current prevalence of down rounds.

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