Cost of debt keeps private equity exits at bay; pension fund-backed M&A plunges

S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week.

Two years of muted private equity exit activity fueled anticipation that, at some point in 2024, fund managers would start to make real progress on the growing backlog of exits. We are still waiting.

The announced value of private equity-backed exits fell 22% year over year to $81.2 billion globally in the first quarter, according to Preqin data. That was the lowest quarterly total since the second quarter of 2020, in the early days of the COVID-19 pandemic.

Behind the scenes, consultants are busy prepping portfolio companies for sale, Peter Kahn, a senior partner at West Monroe, told S&P Global Market Intelligence. Kahn, who is still betting on an uptick in exit activity later in the year, said they are busier with sell-side preparation than they have been in 18 months.

Jeremy Swan, a CohnReznick managing principal, was also eyeing an exit revival sometime around the middle of the year, though he said the latest US inflation data is likely to delay the rebound. Stronger-than-expected consumer inflation numbers in March are likely to delay Federal Reserve interest rate cuts.

"You're not going to see the cost of debt coming down as quickly. That is a major component [of the lower M&A activity], particularly on the private equity side," Swan said.

Read more about private equity-backed exits falling to a three-year low in the first quarter.

CHART OF THE WEEK: Pension fund-backed M&A posts big decline

⮞ Pension fund-backed M&A posted a dramatic year-over-year decline in the first quarter of the year, with the $1.26 billion in announced deal value representing a 92% decrease from $15.27 billion a year earlier, according to Market Intelligence data.

⮞ It was the second consecutive quarterly decline in the value of M&A deals with pension fund involvement.

⮞ Private equity firms were coinvestors in eight of the 10 largest pension fund-backed M&A transactions announced in the first quarter.

TOP DEALS AND FUNDRAISING

– TPG Capital LP, through its middle-market and growth equity platform TPG Growth LLC, made a $235 million majority investment in Sayari Labs Inc., a counterparty and supply chain risk intelligence provider.

– Evolution Equity Partners secured $1.1 billion for Evolution Technology Fund III LP at final close. The vehicle will invest in cybersecurity companies.

– Magnesium Capital LLP raised €135 million for its inaugural fund, Magnesium Capital I. The firm invests in decarbonization companies in Europe.

MIDDLE-MARKET HIGHLIGHTS

– Wynnchurch Capital LP acquired foodservice product distributor Handgards LLC in partnership with the latter's management. The seller was Wind Point Advisors LLC.

– OEP Capital Advisors LP, or One Equity Partners, sold Finland-based packaging and engineered material solutions provider Walki Group Oy. Oji Holdings Corp. was the buyer.

– Somera Private Equity LLC and Entrepreneurial Equity Partners LP bought a majority stake in entities that make the Ty-Gard and Shock-Gard cargo securement products to form Gardian Holdings LLC. PSP Capital Partners LLC also bought a minority stake in the business.

FOCUS ON: PRIVATE EQUITY EXITS

– Hellman & Friedman LLC agreed to sell smart living product company Snap One Holdings Corp. to Resideo Technologies Inc. in a deal valued at about $1.4 billion. Clayton Dubilier & Rice LLC will invest $500 million to help fund the transaction.

– L Squared Capital Partners agreed to sell elevator and escalator repair company Elevated Facility Services Group to APi Group Corp. for about $570 million in cash. The transaction is expected to complete in the second quarter.

– Armis Inc. acquired cybersecurity company Silk Security Inc. for $150 million. The sellers include private equity and venture capital firms Accel Partners, Insight Venture Management LLC and Hetz Ventures Management Ltd.

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