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High interest rates put the cabash on Private EQ deals.

‘This Can’t Go On for Much Longer.’ Private Equity’s Deal Lament

Under pressure from all sides, buyout firms stayed quiet in 2023

By Laura Cooper, and Ben Dummett, WSJ

Dec. 31, 2023 7:00 am ET


Private-equity firms usually drive dealmaking on Wall Street. In 2023, they sat it out.

High interest rates put many new deals out of reach. Shaky market conditions made it hard for firms to cash out of current investments. And some of their investors have been pulling back.


Every aspect of private equity’s core buyout business has been under strain, cutting the normally frenetic pace of deals nearly in half from a year ago.

Many of the more than a dozen private-equity executives, investors and advisers interviewed by The Wall Street Journal wrote off 2023 as a lost year of sorts, with some saying their firms resolved early in the year to avoid dealmaking while conditions appeared too treacherous to realize targeted returns. Some see signs things could improve in 2024.

“The last time I remember a slowdown to this degree was in 2009,” said David Kamo, global head of financial sponsor mergers and acquisitions at Goldman Sachs. “There is a growing recognition that this can’t go on for much longer.”



Private-equity deal activity dropped roughly 40% to $846 billion globally in 2023 from $1.44 trillion in 2022, which was already significantly down from the prior year, according to Dealogic. The measures include purchases and sales as well as acquisitions made by private-equity-owned companies.


That compares with a nearly 20% decline in overall deal volume, thanks in part to a pair of large deals signed in the oil patch: Exxon’s $60 billion purchase of Pioneer Natural Resources and Chevron’s $53 billion purchase of Hess.


Meanwhile, leveraged buyouts, the debt-heavy acquisitions that private-equity firms such as Apollo Global Management are known for, decreased about 25% in 2023 globally.


Despite the deal dearth, private-equity stocks performed well in 2023. The stock prices of Blackstone and Apollo ended the year up more than 70% and nearly 50%, respectively, outperforming the S&P 500 index’s 24% gain.


On earnings calls, many firms highlighted their private-credit businesses, which flourish in periods of high rates by offering an alternative to traditional lenders. More recently, the firms’ stocks have been buoyed by the prospect of rate cuts next year.


But their bread-and-butter traditional buyout businesses are hurting. Elevated interest rates have gummed up firms’ ability to access cheap debt. That has pushed them toward either using pricier credit sources or putting more equity into deals, both of which cut into potential profits.


A private-equity firm that was borrowing money at a cost of 6% in 2021 could be paying as much as 9% now, according to a September report by Blaine Rollins, a managing director at private-markets firm Hamilton Lane.


Locking in profits from existing investments has also gotten harder.


Exit activity, which tracks how many companies buyout firms sell, was at its second-lowest point in the last decade in the U.S. during the third quarter, according to PitchBook. (The only time with less activity was in the earliest months of the pandemic.)

Firms have been reluctant to accept lower valuations after the lofty price tags achieved for businesses during the flurry of activity in 2021.

Most planned initial public offerings were shelved after a few tepid public debuts in the fall. Payments firm Waystar, one of the last large private-equity-backed offerings anticipated in 2023, recently delayed its debut. (Globally, IPO volume overall dropped around 30% in 2023 from a weak 2022. While a few marquee debuts, including that of chip-designer Arm Holdings, got out the door, trading has been volatile.)

As a result, money being returned to pension funds has “fallen off a cliff,” according to Sunaina Sinha Haldea, global head of private-capital advisory at Raymond James. That has prompted investors to cut back. The amount so-called limited partners provide to private-equity funds is now on average about 75% of what they did previously, Sinha Haldea said.


Some in need of cash have been pushed to sell secondhand, or secondary, stakes in private-equity funds, usually at steep discounts.


Limited partners are also frustrated that few new deals are being struck, with some wondering why they pay 1.5% to 2% management fees to see their money sit still. Most private-equity firms also take around a 20% cut of profits.


Private equity’s stagnation has been felt across Wall Street. The bankers and lawyers who specialize in serving the industry—who bulked up their ranks in 2021 to keep up with the deal frenzy—are now commiserating about the slowdown crimping their expected bonuses.


Alan Johnson, who heads compensation-consulting firm Johnson Associates, estimates the annual base salary and bonus of private-equity dealmakers will be roughly flat with 2022 while the deal bankers advising them could suffer a roughly 20% drop in bonus payouts.


Some advisers point to the market’s growing expectation of interest-rate cuts and rising stock prices as evidence private-equity deals could return in the new year. They are also encouraged by a recent flurry of activity.


A group including Blackstone and Permira recently launched a roughly $13 billion bid for an Oslo-listed online-classifieds business backed by eBay. Meanwhile, KKR is in talks to buy a stake in Cotiviti that would value the healthcare-technology company at around $11 billion and e-signature company DocuSign is exploring a sale that could rank among the largest leveraged buyouts in recent memory.


“If it does start to turn, it will be an avalanche of deals,” said Goldman’s Kamo.

Write to Laura Cooper at laura.cooper@wsj.com and Ben Dummett at ben.dummett@wsj.com

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