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Positive Outlook for Deal Making in 2024

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Investment bankers are optimistic about a surge in deal activity in 2024 due to positive sentiment surrounding stable interest rates and effective workarounds. According to Michele Cousins, head of leveraged capital markets for the Americas at UBS, clients are becoming more proactive, and there is increased interest in pushing forward with deals that are ready to go. Improved market conditions and reduced volatility have instilled a greater sense of confidence among investors and participants.

Cousins also highlighted the resurgence of leverage-loan activity, which is a crucial element in private-equity transactions, as well as corporate refinancing. Following a brief slowdown in October, these areas have experienced a strong rebound in recent weeks. Reflecting on the first half of the second half of 2023, Cousins noted that loan activity was picking up momentum before a market volatility setback occurred in October.

Leveraged buyouts, however, have had a challenging year overall, with volumes declining by more than 50% compared to 2022. As of now, there have only been about 25 transactions in 2023, with two weeks remaining. Cousins described this figure as remarkably low.

On the flip side, Max Justicz, co-head of financial sponsors for the Americas at UBS, emphasized that favorable commentary surrounding the Federal Reserve’s recent interest-rate decisions has also played a role in boosting deal activity. Additionally, indicators such as the Cboe Volatility Index reflect greater market stability in recent times.

Overall, investment bankers are optimistic about the deal-making landscape in 2024, driven by the belief that stable interest rates and increased comfort levels among investors will stimulate more robust transactional activity.

Prospective Buyers and Sellers Utilize Value-Bridging Tools

Prospective buyers and sellers are utilizing value-bridging tools, such as earnouts, seller notes, and equity rollovers, to approach the finish line on price, according to Justicz.

Pent-Up Demand for Deals

Data from Bain & Co. reveals that over half of the approximately 26,000 portfolio companies, valued at a combined $2.8 trillion, have been held by their private-equity funds for more than 4.5 years. This indicates a significant pent-up demand for deals.

Record “Dry Powder” in Private-Equity Funds

Private-equity funds currently have a staggering $2.59 trillion in “dry powder,” which refers to capital waiting to be deployed. This represents a record amount and showcases the potential for increased deal activity.

Tech Sector IPOs Projected to Increase

Laurence Braham, the global co-head of technology banking at UBS, predicts that initial public offerings (IPOs) from the tech sector will approach a normal run rate of 30 by calendar year 2024.

Slowdown in New-Issues Market

Following a series of underperforming tech IPOs over the summer, including those from Arm Holdings, Klaviyo, and Instacart, the new-issues market experienced a cooling period during the fall. However, there has been an increase in the launch of new processes, indicating a potential revival in the market.

Positive Outlook for 2024

Braham believes that 2024 will be a better year than 2023 overall, with potential upside surprises as the deal environment and psychology improve.

These insights were shared during the UBS Americas Capital Markets and M&A Media Roundtable.

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