Moving forward, looking inward – M&A trends in private equity

Private equity firms prioritized performance amidst slower M&A but will spend some of their record dry powder on the right deals.

Private equity started strong in 2022 following an historic year for deal making. Then, inflation, rising interest rates, and geopolitical tension created a drag in the second half.

Despite the headwinds, the PE industry reported record deal value of $920.2 billion in 2022, and the second-highest annual volume on record of 8,845 transactions. By year’s end, the global PE industry also held nearly $2 trillion in cash, more dry powder than ever.

PE firms adapted as conditions declined into 2023, and the vast majority expect their deal activity will remain static or decline over the next 12 months, according to the KPMG 2022 Year-End M&A Survey.

We believe that deal activity will begin to pick up in the second half of 2023 with greater certainty that the Fed will have backed off interest rate hikes and the consumer price index will have stabilized. Until then, PE firms are more focused on portfolio performance, but still open to opportunities during a weaker economy and slower M&A market.

  • Given the strength of the dollar, there is a strong appetite for cross-border deals in 2023. Among the PE professionals we surveyed, 43 percent said they will consider international deals in 2023.
  • Carve-out opportunities will increase as companies shed underperforming assets and re-focus their businesses in a down market.
  • While there’s a mismatch between lower valuations and continued high price expectations, buyers will be more discerning on asset quality and price, searching for bargains created by market conditions.
  • PE firms expect to apply less leverage per acquisition as access to debt financing declines. Less-common deal structures, such as co-investment and minority deals, will allow sponsors to participate without overextending.
  • More than half of firms surveyed, 56 percent, say they are leaning toward 100 percent equity deals as an alternative strategy. Ultimately, average transaction size will shrink.

For more context on PE industry performance in 2022 and a look ahead for 2023, download our full Q4’22 report on M&A trends in private equity. 

Contact us

Joe Hartman

Joe Hartman

Partner, Advisory, Financial Due Diligence, KPMG US

+1 312-665-2489
Richard Chen

Richard Chen

Principal, Strategy, KPMG US

+1 949-431-7285
Grace Wang

Grace Wang

Director, Deal Advisory & Strategy, KPMG US

+1 319-541-9739