The Road Ahead for Private Equity: Reflections and Predictions

The year 2023 will be remembered as a challenging year for private equity, with complexities to navigate on many fronts. Traditional debt financing was expensive and scarce, expectations on valuations were tricky to navigate, portfolio companies required additional attention, fundraising was not easy and regulators continued to scale up their scrutiny of the industry and its transactions. Although overall deal volume was significantly down, private equity funds still found opportunities to do deals even in the face of these stiff headwinds.

In this special report, the Akin private equity team dives into some of the key challenges the industry faced in 2023 and discusses where we think the opportunities will be in the market in the year ahead. We are covering important topics impacting private equity funds including:

• Workforce Management: There is a growing movement to ban non-competes across the United States and Europe, with some states and countries already implementing restrictions or outright bans. Private equity investors seek to manage incentive alignment in a challenging market, and investors watch for increased unionization activity.
• Antitrust & Merger Control: Recent actions by antitrust and merger control agencies globally deliver on their promises for increased scrutiny of private equity-sponsored transactions and strategies in at least three ways.
• Private Funds & Dealmaking: Fundraising has been challenging over the past 12 months, primarily driven by the fact that distributions have slowed as a result of the lack of exit opportunities. We are seeing a real push on fundraising in Q1 2024 as sponsors look to tap limited dry powder early in the new year. New funds regulations will require fund managers to navigate an increasingly complex landscape.
• Foreign Investment Regulation: The U.S. is increasing scrutiny of inbound foreign investment and establishing a new program to restrict certain outbound investments, while the EU's regulatory response is still in its early stages.
• Debt Finance: We have continued to see activity in the debt finance markets, but the higher cost of capital, ongoing geopolitical uncertainties and mismatch in buyer/seller pricing expectations meant that deals have been getting done with less leverage.
• Health Care & Life Sciences: Despite strong private equity interest in drug and device targets, policy changes in the health care industry have made the M&A market tricky to navigate. Health care has been one of the most active policy focus areas in 2023 and this ongoing policy activity has the potential to impact private equity investors in the industry.
• Energy Transition: The scale of the investment requirement makes private capital a “must have” and a broad spectrum of energy transition opportunities, particularly in “hard to abate” solutions, where direct electrification does not provide an efficient solution, offer a risk and return profile well suited to private equity fund expectations with significant value enhancement and upside potential.