Report Searching for Momentum: Private Equity Midyear Report 2024

• Private equity’s two-year slide in deals, exits, and funds closed slowed in the first half of 2024, but activity remained tentative and momentum scarce.

• Limited partners, meanwhile, continue to press for an increased pace of distributions and are focusing new commitments on a narrow swath of favored funds.

• General partners who can’t shepherd portfolio companies to attractive outcomes may face a shakeout. But there are practical ways to get the wheel spinning again.

Has private equity dealmaking finally bottomed out?

Based on data through May 15, the answer would be a tentative yes—though we’ve yet to see anything resembling a “normal” pace of investments and exits.

The industry’s precipitous decline in deal count over the past two years leveled off in early 2024, and buyout funds globally are now on track to finish the year essentially flat vs. 2023’s count total. While exits also appear to have arrested their freefall, activity has landed at a very low level. And as limited partners (LPs) wait for distributions to pick up, most funds are still struggling to raise fresh capital (see Figure 1).

Given that 2024 deal value will likely approach that of the buoyant years preceding 2021’s anomalous postpandemic spike, it’s tempting to assume that normal isn’t so far off. But activity relative to the mountain of dry powder available remains stunted by historical standards. For comparison, 2024 deal value is on track to roughly match 2018’s total, yet there is more than 1.5 times as much buyout dry powder today as there was back then. With the exception of very large headline deals like the $15.5 billion acquisition of Truist Insurance led by Stone Point Capital and Clayton, Dubilier & Rice or Permira’s $6.9 billion bid to take Squarespace private, there’s little empirical evidence that the market is truly on the upswing.

How soon that might change is the million-dollar question.

When Bain & Company surveyed more than 1,400 market participants in March to find out when they expected dealmaking activity to bounce back, around 30% said they don’t expect any pickup until the fourth quarter, and close to 40% predicted it would take until 2025 or beyond (see Figure 2). Yet informal discussions with general partners (GPs) globally suggest that deal pipelines are already starting to refill, and many see the green shoots of a recovery beginning to poke through.

The bigger issue is the industry’s persistently low levels of distributed to paid-in capital (DPI). The prolonged slump in exits is having a measurable impact on funds’ ability to raise new capital and keep their LPs satisfied. Finding ways to generate DPI strategically across the portfolio is rapidly becoming a point of competitive differentiation. It may determine which funds meet their fund-raising goals in the years ahead and which fall by the wayside.

The macro environment—which Karen Harris, managing director of Bain’s Macro Trends Group, described in a recent Dry Powder podcast as “calm, but not stable”—is probably the biggest hurdle to closing transactions.

Although the Federal Reserve has held steady for almost a year, interest rates haven’t retreated as expected in 2024. And while the US economy appears to be defying gravity, the yield curve is still inverted, inflation-driven prices are still too high (way too high if you factor in financing costs), and ongoing geopolitical uncertainty in the Middle East, Ukraine, and China continues to rattle nerves. The looming US presidential election, meanwhile, only dials up the uncertainty.

In Europe, slow (or no) growth will likely induce the European Central Bank to follow Switzerland and ease rates this year. And though that may spark consumer spending, especially in markets where adjustable-rate mortgages predominate, Europe’s elevated public spending requirements (defense, infrastructure, the debt brake in Germany) remain an anchor. Overall, the growth picture will likely be muted.

Added to the challenge of managing rate-related issues within existing portfolios, this broad-based macro uncertainty has left dealmakers distracted and wary on either side of any transaction. Through May, that caution was playing out across the value-creation cycle. Here’s a closer look at the implications.