Have we found a ‘new normal’ in private equity transaction deal count?

26 July 2023

Welcome signs that the private equity market might be settling, as the significant decline in transactions activity experienced since early 2022 has slowed. 

This year’s Q2 private equity (PE) deal activity count has started to level off, after a significant drop in activity. This is particularly visible in platform/primary buyout types. In Europe (including the UK) the count for platform/primary buyout types has settled at 427, close to pre-pandemic levels. In the US, things have levelled out as well, sitting at 303 in Q2 compared to the 2019 quarterly average of 406, a 25% drop. 

This levelling off however, is not visible in acquisitions by PE backed businesses (known as ‘add-ons’) in Europe (including the UK). Add-ons continue to remain under pressure and the deal count numbers continue downwards. The levels are, however, still materially elevated from their pre-pandemic levels, sitting at 52% above 2019’s quarterly average for the Europe (excluding the UK) and 28% for the UK. The US’s figure of 960 in Q2 is 9% up from 2019’s levels, and down 49% down from the peak of 2021 Q4. 

A mix of headwinds impacting deal flow…

In April this year we looked at the impact of interest rates and the other economic headwinds on sellers’ willingness to sell, and on the viability for leveraged transactions and how this translated pressures on different PE buyout types. 

On the downward pressure side, we expect interest rates to stay ‘elevated’ (essentially back to the historical average). Tighter monetary policy still needs to feed through to the economy and the UK, along with the rest of Europe, will remain under pressure into 2024. As an illustration, Germany, which made up 14% of Europe’s buyout deal count in the first half of this year, has seen its IFO Business Confidence Index fall for three consecutive months, with July’s figure of 87 worse than economists expected and below the 10-year average of 96. 

Fund raising will remain under pressure for the majority of PE firms as limited partners continue to rebalance their asset allocations.  As a consequence we are now starting to see some private equity investors holding back from deploying their capital especially those with a high proportion already invested. They are doing this in order to avoid having to go into fund raising mode during this economic climate. Fund raising can be a long and tough in the best of times, and brutal when the markets are down.  

…with a mix of tailwinds too

New funds are still being raised however, but that is being increasingly concentrated into the hands of larger funds that typically have better known track records. For example, CVCs announced in July this year that they had raised a European record of €26 bn for their latest fund. As PitchBook Data Inc described the concentration: “megafunds get more mega”.

We are seeing active interest in the most attractive assets and pressure remains on PE investors on the whole to deploy their ‘dry powder’ which still remains at near record levels.  

Also, the easing of inflation in key countries like the UK, Germany and the US and our expectation that interest rates will not need to rise much further is helping provide certainty for projections – a key ingredient for the confidence in decisions made by sellers and buyers.

As an outlier, in the event that interest rates have been over-shot and need to rapidly retreat in order for economies to be spurred on again, then we’d expect deal flow to rise as the interest burden would be lower and the struggling companies in that weakened economy might turn to private equity as a lifeline.

For the UK, the general election in 2024 may lead to the introduction of a capital gains tax which would spur owner-managed businesses into a sale. We are unlikely to see the spike in deal activity like in 2021 Q1 as that was supported by post pandemic optimism and ultra low interest rate, but it could lead to an uplift nonetheless.

Overall, considering the mix of headwinds and tailwinds impacting investors, deal count is likely to remain approximately at Q2’s levels for the rest of 2023, and possibly into 2024, with add-on acquisitions remaining the predominant transaction type.


The source data used here is from PitchBook Data Inc. RSM UK has however made an adjustment to 2023 Q2 to account for reporting delays to PitchBook thereby allowing RSM to provide an early view of deal activity. 

Jasper van Heesch
Jasper van Heesch
Director, Private Equity Senior Analyst
Jasper van Heesch
Jasper van Heesch
Director, Private Equity Senior Analyst