Recent financial news headlines referencing some of the largest institutional investors sparked the conversation, such as Apollo’s Co-President stating that the private equity industry may have to endure “fewer realizations and lower returns” for a while. At least until, as he said, “the pig moves through the python.” 1

Reflecting on the discussion between experienced M&A professionals and capital allocators, a healthy degree of caution was evident given economic headwinds and perceived financial and political risks. But there was a sense of optimism that volatility and disruption can bring new opportunities and increased deal activity for creative and nimble investors with ample capital to deploy and for skilled operators that pivot to more value creation techniques. This correlates with what we are seeing more broadly among our clientele at Stout.

For example, Zak Shah from Stout’s Transaction Advisory group points out some of the types of value creation engagements the group has been involved with and potential implications for private equity M&A in the remainder of 2024 and into 2025:

  1. Bolt-On Acquisitions to Grow Existing Platforms

    2. We continue to see bolt-on acquisitions in the market. There is an increased focus on identifying synergies and ensuring, through proper diligence, that the deal will add to the value of the platform, preparing for when larger-scale deal flow intensifies in 2025 and beyond given the current record level of dry powder in private equity.

  2. Finance Integration and Enhancement

    3. For contemplated add-ons or previously acquired entities, there is a renewed focus on thorough and rapid integration of the businesses to unlock cost savings and realize synergies.

    Lean finance teams at platforms seek to update and streamline processes across add-ons, creating efficiencies across roles, guarding against risks due to lack of controls or poorly defined activities, and enabling better management decision-making.

    Additionally, a focus on enhanced reporting (for external lenders and internal management), forecasting (cash forecasting and overall performance), and key performance indicators (KPIs) for existing investments assist private equity and leadership in making strategic improvements and decisions.

  3. Technology Investment for Productivity and Profit Gains

    4. In conjunction with rapid integration or addressing previous add-ons that were not effectively integrated, private equity is shifting focus toward longer-term investments such as unified enterprise resource planning (ERP) software to consolidate disparate systems and reporting, or strategically adding technology solutions that do not require a full-blown ERP implementation and timeline, such as an Enterprise Performance Management (EPM) or other consolidation tools.

    Additional add-on systems focusing on key processes such as procurement, inventory, payables, receivables, and analytics are major areas of enhancement for platforms. The focus in any technology implementation is to transition to more automated systems and processes, allowing time to be spent on analyzing and driving learnings from results at an accelerated pace.

  4. Market and Exit Readiness

    5. Market and exit readiness will help differentiate assets in what is expected to be a competitive environment with firms ready to deploy capital. Ensuring reporting is accurate and ready to undergo an intensive diligence process, presenting value effectively to the market supported by metrics and KPIs, and aiming to accelerate the sale process, unlock value, and identify and mitigate issues early are seen as essential steps.

Moving Through Choppy Waters

Discussing the roundtable with other Stout colleagues post event, Rishi Sharma, Director in Stout’s Chief Revenue Office, replied, “In today’s volatile market, private equity firms are facing material headwinds: A slowdown in exit activity, a higher cost of capital, bank failures, and overall macroeconomic uncertainties will likely create a challenging outlook for the capital markets for the balance of 2024 going into 2025.

“However, we anticipate a likely pickup in the M&A market as funds adapt to this new normal, focus on consolidation opportunities in warm sectors such as industrials and technology, media, and telecom, and as funds continue to navigate material pressures from investors to get deals done in a competitive market. We are seeing a dearth of unprecedented transaction opportunities, especially as the global inventory of sponsor-backed companies continues to grow at a rapid clip to more than 27,000.

“At Stout, we leverage our deep industry expertise to guide and partner with our clients through these choppy waters, helping them not only navigate uncertainty but unlock significant, long-term value creation.”

  1. Jan-Henrik Förster and Kat Hidalgo, “‘Everything Is Not Going to Be OK’ in Private Equity, Apollo’s Co-President Says,” Bloomberg, June 5, 2024.