2023 Private Equity Survey and the Year Ahead

Slow Year for M&A

In 2022, M&A activity suffered a precipitous drop following a white-hot year in 2021. Rapid inflation, rising interest rates, geopolitical conflicts, and supply chain constraints combined to exert downward pressure. The trend of declining deal value continued into 2023 in an ongoing high interest rate environment.

Peering into 2024, Class VI surveyed our private equity network in January, probing the sentiment of investors engaged across industries and deal sizes within the middle market. The results offer some insights on deal activity over the past 12 months and expectations for the coming year.

One conspicuous trend emerged: Although a majority of respondents observed a drop in both deal flow and quality in 2023, the consensus was that auction-process competition heated up beyond 2022 levels.

The data confirms a scarcity of high-quality platform deals available for acquisition, amidst a field of financial sponsors holding historically high levels of dry powder ready for deployment. The charts below illustrate the resulting dynamic.

The high interest rate environment also boosted competition in the lower middle market. Many large funds reduced or halted platform acquisitions in 2023, shifting attention to lower cost, add-on acquisitions to support the growth of existing portfolio companies.

Deal flow in 2023 as compared to 2022 was:

Deal quality in 2023 as compared to 2022 was:

Auction process competition in 2023 as compared to 2022 was:


Leverage Shift

Predictably, Federal Funds Rate hikes affected private equity leverage reads in a notable way. The following charts illustrate the downward shift in leverage that most financial sponsors experienced when soliciting financing for transactions.

Over 60% of respondents reported a 0.25 to 2x EBITDA leverage drop when comparing year-end 2023 and 2022.

On average, leverage reads in Q4 2023 as compared to Q4 2022 were:

Recent history has taught us to avoid predicting remarkable change in either direction. Nonetheless, many individuals in our network expect the Fed to keep rates steady through its next few meetings, with possible rate cuts beginning as early as the second quarter.

Dealmakers and sellers both hope that such an outcome will start to reopen the debt markets. In fact, many respondents indicated they observed a shift with lenders beginning last fall. There is optimism that a steadier debt environment will significantly increase activity for larger platform transactions.


Deal Terms Shift Back Towards Buyers

Respondents also noted a shift from a sellers’ market to a buyers’ one. Deal terms, such as indemnification periods, escrows,  and earnouts, have inched further in favor of buyers, or at least closer to the middle than in previous years.

About half of respondents observed moderately greater negotiating leverage for buyers in 2023 than in 2022. Only 12% claimed that 2023 brought more favorable seller terms. The new power dynamic has likely been caused, in part, by more stringent lender diligence.

Added buyer and lender scrutiny also contributed to a historic level of broken deal processes in 2023. One group reported that 70% of deals they bid in 2023 failed to close.

Deal structure and terms (indemnification, escrow, earnouts, etc.) in 2023 as compared to 2022 were:


Industry Predictions

The survey also explored investor predictions for 2024, including valuation expectations for specific sectors. Respondents anticipate that the consumer sector, which has experienced a significant drop-off in deal value from a historic peak in 2021, will see modest change in 2024.

Business services attracted slightly more optimism from respondents. Over 30% of those surveyed expect a moderate increase in valuations, while 46% predict sector valuations in the coming year will be consistent with 2022.

Industrial and manufacturing elicited similar positivity, with over 70% of respondents believing that valuations will either remain consistent or increase moderately.

Many buyers seem to believe the technology sector is in line for a mini rebound after being among the most negatively affected markets over the last couple of years. In fact, only 6% of respondents anticipate a drop in technology valuations in the coming year.

A complete summary of 2024 industry valuation predictions can be found below.

Over the next year, as compared to Q4 2023, I anticipate average valuations in the consumer sector will:

Over the next year, as compared to Q4 2023, I anticipate average valuations in the business services sector will:

Over the next year, as compared to Q4 2023, I anticipate average valuations in the industrial & manufacturing sector will:

Over the next year, as compared to Q4 2023, I anticipate average valuations in the technology sector will:



Overall, M&A deal closings remained stable in 2023 relative to historical standards, although expensive financing exerted material impacts on total enterprise deal values.

Investors’ 2024 predictions appear cautiously optimistic. The future will likely depend largely on the Fed’s rate strategy, in addition to the upcoming election cycle. Although a continued high inflationary environment would tend to put additional downward pressure on deal value, private market M&A fundamentals remain strong. Demographic effects of retiring Baby Boomers and the $1.6 trillion in private equity dry powder awaiting deployment point to continued activity from buyers and sellers in the coming months


Bobby Motch  |  Head of Sponsor Coverage |  Class VI Securities, LLC

As head of Sponsor Coverage, Bobby is responsible for managing financial and strategic sponsor engagement, developing sponsor-related content, and managing Class VI’s Buyer CoPilot program. Prior to his role as Head of Sponsor Coverage, Bobby was responsible for executing and closing transactions and supporting Class VI clients through financial analysis, modeling, market outreach, industry research, and valuations.

The views expressed represent the opinion of Class VI Partners. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness.  While Class VI Partners believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the Class VI Partners view as of the time of these statements.

Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Testimonial may not be representative of the experience of other customers. Testimonials are no guarantee of future performance or success. Testimonials are NOT paid testimonials.