Private Equity in 2023—A Year (Not) to Remember
In our memo early last year, we noted that private equity investors and dealmakers faced considerable uncertainty heading into 2023 following a challenging 2022. Indeed, the headwinds that slowed private equity in 2022—among others, rising interest rates, persistent inflation, widely divergent valuation expectations, market and geopolitical upheavals and heightened regulatory scrutiny—endured in 2023, and new […]
Steven A. Cohen, Karessa L. Cain, and John R. Sobolewski are Partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Mr. Cohen, Ms. Cain, Mr. Sobolewski, Andrew J. Nussbaum, Victor Goldfeld, and Alon B. Harish.
In our memo early last year, we noted that private equity investors and dealmakers faced considerable uncertainty heading into 2023 following a challenging 2022. Indeed, the headwinds that slowed private equity in 2022—among others, rising interest rates, persistent inflation, widely divergent valuation expectations, market and geopolitical upheavals and heightened regulatory scrutiny—endured in 2023, and new challenges emerged. Private equity continued to show resilience, however, as sophisticated dealmakers deployed innovative approaches to fill financing gaps and get deals done, and as a number of sponsors continued their transformation from buyout shops to alternative asset managers offering a broad range of capital solutions both in the M&A context and beyond, including private credit.
Financial sponsors are likely to face many of the same challenges as 2024 begins—but where it ends is anyone’s guess. Not many would have predicted the rebound in equity markets in the second half of 2023 or the rising (for now) prospects of a soft landing for the broader U.S. economy, and 2024 is similarly unpredictable. Some sponsors are hopeful for an uptick in activity this year amid a more favorable borrowing environment, as interest rate increases wane and recession fears subside, while others are resigned to another year of relatively low activity. In such an environment, flexibility and careful planning will continue to be essential to creating and exploiting opportunities.
