2024 Trends Outlook in M&A that impact Value Creation

January 11, 2024

Two main trends are emerging coming out of 2023 that directly affect value creation in PE-backed companies. Increased holding periods, challenging exit conditions and strained fundraising will prompt private equity sponsors to lean into functional areas they haven’t historically by creating their own value creation teams. Secondly, they will continue to seek out founder-led businesses who are fertile ground for top line growth by professionalizing their teams with an infusion of PE capital.

Holding periods of US PE-backed companies expected to hit new records as macroeconomic conditions remain weak

According to Pitchbook’s “2024 US Private Equity Outlook”, the median holding period for US PE investments exited in 2023 reached 6.4 years, the first time it has crossed the six-year mark since 2015. Prolonged inflation has led to significant slowing in exit activity.

Many PE firms will take the longer-term approach, waiting for improved market conditions before exiting their investments, expecting more favorable valuations in the future. As portfolios age, PE sponsors are turning to continuation funds or secondaries for exit options.

However, the building of PE company inventory and reduced returns back to LPs, is reducing the amount of capital available to raise new funds.

PE sponsors, whose expertise is in building businesses, are taking a closer look at what was historically left to functional leaders. Several lower middle market private equity firms are standing up their own in-house value creation teams or building out their existing one. These teams are tasked with supercharging topline revenue growth.

Founder-owned company deals continues to trend upward

I anticipate that PE will continue to harvest multiple-arbitrage by leaning into founder-led businesses with a buy-and-build strategy to compensate for strained exit valuations.

“Acquirers of founder-owned businesses are entering these companies on the ground floor in terms of value creation opportunities, such as scaling the business and improving cost efficiency. We anticipate that GPs will continue to turn toward non backed companies to operate their value-add strategies in this manner. Founder-owned businesses also tend to offer cheaper purchase price multiples—a welcome offset to higher borrowing costs.”
– Pitchbook’s “2024 US Private Equity Outlook”

In Conclusion

The two main trends of increasing hold times and increased focus on founder-led targets is spurring value creation roles in PE firms.

Here at Centrae, we focus very simply on articulating what the goal is, how it connects to the value creation plan, and how it gets measured. By adapting to market changes, aligning the strategy with the longer term investment horizon, the Centrae platform scales value creation execution across portfolio companies to prove out an attractive thesis, and ensure healthy returns despite a challenging exit environment.

Learn more about how Centrae’s laser focus on implementing go to market strategies in founder-led businesses can predictably scale your portfolio.

About Centrae, Inc.

The Centrae Platform pairs cutting-edge technology with expert services to empower revenue teams to consistently accelerate scalable, repeatable, and profitable revenue growth. Our unique combination of tools and expert professional services deploys proven best practices to optimize performance and operational excellence and maximize company value.

To learn more about Centrae’s unique process, please visit centrae.com

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