Exits are slow but there may be signs of speeding up

What are you seeing out there? How is private equity fundraising shaping up so far in 2024? Our understanding is that not much has changed from last year’s stingy market, with LPs still facing low distributions and many continuing to be overexposed to the asset class.

So what does that mean? For as tough as fundraising is, we continue to see certain firms – both established and new – stand apart, raising capital in relatively quick time and meeting or exceeding targets. A few examples include Clayton Dubilier & Rice, Coalesce Capital, Genstar Capital, GTCR, Lexington Partners, TA Associates and Warburg Pincus.

It’s really all about exits at this point: without exits, and money flowing back to LPs, fundraising is not going to pick back up to the levels we saw pre- or immediately post-pandemic.

Some good news, perhaps. The exit outlook has improved slightly, but is still not where it needs to be to make fundraising easier than last year.

“Market conditions have improved since this survey was fielded, with the US stock market gaining 14 percent in November and December 2023. Rising cashflows and valuations may be the catalyst for increased PE exits in 2024 after nearly two years of intense portfolio triage,” according to a fresh report from BDO.

The exit market last year fell to activity levels not seen since the great recession of 2008, BDO said. The report cited PitchBook data showing that PE exit activity fell to 1,121 exits in 2023, a 17.7 percent decline from the average in the years before the pandemic.

Portfolio company CFOs report fewer plans for exits than last year, the BDO report said. The area of most weakness is IPOs, with only 4 percent of portfolio company CFOs planning a public listing. Enterprise sale plans dropped by a third to 31 percent, according to respondents.

With full exit activity remaining muted, PE firms turned to carve-outs and divestitures as a way to get proceeds back to LPs in older funds. Around 21 percent of portfolio company CFO respondents reported plans to pursue such transactions this year, versus 13 percent last year, BDO said.

As our dedicated readers know, GPs have also been exploring other ways to deliver liquidity to LPs, including continuation fund deals and fund financing arrangements.

All of this is interesting and some of the deals may even find their way to a final close. But, ultimately, what the PE industry needs is a strong wave of traditional exit activity to get the gears re-engaged, so the natural PE cycle can rev back up again.

Let me know what else you’re hearing! Hit me up with tips n’ gossip or feedback at christopher.w@pei.group or find me on LinkedIn.

Upcoming: We’re getting closer to our inaugural private equity conference NEXUS 2024, which runs March 6-8 at the JW Marriott Orlando, Grande Lakes. I’m excited to see a lot of you there to chat in person about the industry and how the year is shaping up. March will be a good time to get a sense of where things are around fundraising, M&A, exits, secondaries, The Drama.

Some of the keynoters include Chris Ailman, outgoing CIO at CalSTRS; Lamar Taylor, interim executive director and CIO of Florida’s State Board of Administration; Matthew Liposky, chief investment operating officer at MassPRIM; and Steven Meier, CIO and deputy comptroller for asset management for the NYC Retirement System.

Get more information about the event here.