Dealmaking by private equity firms hit its lowest in four years, under pressure from high interest rates, recession fears, and a weak outlook for corporate earnings, although some analysts predict stored-up funding will drive a near-term rebound.
Private equity deal volumes slumped 63% from the same period last year to $293.5 billion, data from Dealogic showed.
Higher borrowing costs have led private equity to pursue fewer deals and avoid businesses with unpredictable cash flows.
Since the start of the year, buyout firms have been unable to secure cheap debt and have had to draw on their own funds, marking a departure from traditional leveraged buyouts.
“Rising interest rates have made private equity deals more expensive. Inflation has cut into target companies’ profit margins,” said David D’Urso, a partner at U.S. law firm Akin Gump Strauss Hauer & Feld. “Sellers are still expecting 2021-type valuations, which is not possible (due to the above reasons).”