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Private Equity Deals Momentum Stalls In Q3 2022

2022 Has been a brutal year for the finance industry. Even the private equity sector faces severe setbacks, especially concerning deal values. Numbers have decreased by nearly 50% in the year’s first three quarters. 

Private Equity Deals Retrace

Despite the harsh financial climate, there is still a strong interest in private equity deals. Venture capitalists and other investors keep their wallets closed as all financial markets struggle. In addition, growing inflation concerns, dovish interest rate hike momentum, and global uncertainty continue to fuel the fire. Per a new report, it creates a volatile and erratic outlook for the PE industry. 

The decrease in PE deals comes at a curious time. More specifically, the current numbers are still higher than the 2017-2020 periods, which should cause optimism. However, 2021 was a breakout year for private equity deals in every quarter. Values ranged between 1,694 buyouts and 1,948 buyout deals per quarter. In dollar terms, over $400 billion would go into these global PE buyout deals every three months. 

Unfortunately, 2022 offers a far less stellar performance. The buyouts looked strong during Q1 2022 – at almost 2,000 – but fell to 1,061 in Q3. It is not uncommon to see momentum reverse somewhat after seven months of quarterly growth. However, such low numbers have not been seen since Q3 2022, when the COVID-19 pandemic was in full swing.

Valuation-wise, the private equity deals are getting smaller. No 2022 quarter has surpassed $300 billion, and Q3 fell to $128.1 billion. That is still a substantial sum, but the lowest recorded since Q2 2020. It must be said Q3 is often a less impressive quarter since 2017, but the current price represents a nearly 50% decrease compared to six months prior. That concerns investors, yet there seems to be no immediate change on the horizon. 

BNPL Industry Struggles

One thriving factor in the 2021 PE deals was the growth in BNPL firms. Many companies noted stellar growth in the COVID-19 era, as consumers had to shop online. Enabling them to spread purchases over several installments has always been appealing, but even more so since 2022. In times of high inflation, one would expect that trend to continue. Unfortunately, consumers are spending less on goods they don’t need for survival, and BNPL providers feel the effects. 

Overall, it has also become much harder for companies to raise capital. Private equity offerings saw a 30.6% decline in closed deals in Q3 2022. In addition, their overall value has also dropped by over 15%. Investors and angels are less eager to spread themselves thin. It can be beneficial to have a finger in many pies, for diversification purposes. That becomes less appealing during such uncertain times, though.