2024 Private Equity First Quarter Trends and Outlook
Private equity (PE) deal activity is on the rise, with 2024 marking a return to a normal growth trend after two down years.
The decline in deal volume was primarily attributed to rising interest rates and slowing overall growth. However, signs of improvement in the fourth quarter of 2023 and first quarter of 2024 indicate a promising outlook for the year ahead.
Learn key trends shaping the PE landscape in 2024, including sectors rebounding, strategic investment opportunities, and technology adoption.
Growth trend resuming
After a couple of challenging years, PE deal activity is expected to regain its growth momentum in 2024. The decline in deal volume was primarily influenced by rising interest rates and a general slowdown in economic growth. However, the industry has shown signs of recovery in the fourth quarter of 2023, indicating a positive trajectory for the year ahead.
Sector rebound
The tech, media, and telecom (TMT) sectors, along with retail and energy, faced significant challenges in 2023. However, these sectors are expected to rebound in 2024, presenting attractive investment opportunities for PE firms. As economic conditions stabilize and innovation drives growth, these sectors are likely to witness a resurgence.
Carve-out transactions
PE firms will continue to focus on corporate carve-outs in 2024, as they provide opportunities to acquire underperforming assets from companies looking to divest. These neglected segments can be transformed through revenue and margin growth, making them appealing investments for PE firms seeking value creation.
Roll-up strategies
Roll-up strategies, involving the acquisition of fragmented businesses within sectors with potential for profit margin and revenue expansion, will continue to gain momentum in 2024. Examples include consolidating veterinary and physician practices, CPA firms, and wealth management firms. This strategy allows PE firms to create synergies and drive efficiency within their portfolio companies.
Tech and health care rebound
The tech and health care sectors are expected to experience a rebound in deal volume. Tech companies are particularly attractive due to their robust growth potential, competitive advantages, and high margins. In health care, the demand for innovation and transformation has accelerated due to the COVID-19 pandemic, creating investment opportunities in companies providing solutions for unmet medical needs and improve efficiency.
Working capital enhancement
PE firms in 2024 will focus on enhancing working capital to sustain and improve financial models. Using technology for accounts receivable and accounts payable automation — as well as improving inventory management — will be key focus areas. By streamlining processes and enhancing efficiency, PE firms may drive greater returns on investment.
Expense management
Expense management will be a significant theme for PE firms in 2024, as they strive to make portfolio companies more efficient and protect working capital. Strategies may include license and vendor rationalization, outsourcing non-core functions, and implementing automation wherever possible. These measures can help PE firms achieve operational excellence and enhance profitability.
Artificial intelligence (AI) adoption
AI is playing an increasingly significant role in the deal-making processes of PE firms. It’s used for due diligence, transaction analysis, and implementing platform efficiencies. AI can validate financial projections, lead scoring, and provide industry-specific solutions. The integrating AI technologies allows for more accurate decision-making, improved efficiency, and enhanced returns.
Other focus areas
PE firms will also focus on:
- Implementing environmental, social, and governance (ESG) strategies,
- Cybersecurity measures,
- Executive talent acquisition,
- Global expansion,
- Finance and accounting improvements, and
- Back-office technology implementation.
Embracing these areas may enable PE firms to create sustainable value and drive long-term success for their portfolio companies.
How we can help
PE industry is poised for growth in 2024 and CLA is here to help execute on strategic investments, efficiency improvements, and leveraging technology for growth. Despite challenges faced in previous years, the rebounding sectors, increasing adoption of AI, and a keen eye on enhancement strategies signal a promising year for PE deal activity. By keeping abreast of these trends, investors may position themselves for success in the dynamic world of private equity.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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