Lincoln International shares positive signs of an M&A market acceleration.

Private Market

Positive Macro Economic Outlook – As of September 2024, markets are currently pricing in a ~200 bps decrease in the Feds Funds Rate over the next 12 months, which will boost investor confidence and provide a tailwind for private equity firms to engage in a higher level of deal making activity.

Valuation Recovery – Private company and public market valuations both increased in H1 2024; private company valuations, driven by strong operating performance, remained less volatile than the S&P 500, where increases were largely driven by multiple expansion within the seven largest companies.

Debt Market

Lenders Are Eager to Transact – Pullback in new deal activity, paired with ample dry powder, has caused many lenders to search for new opportunities to deploy capital and reverse the cautious sentiment of the last two years.

Deal Terms Are Improving – Lenders are competing aggressively for high-quality assets with strong free cash flows, leading to improved deal terms, including tighter pricing and increased total leverage.

M&A Market

Private Equity Faces Growing Pressure to Transact – While overall deal volumes were down in H1 2024 compared to the same period in 2023, private equity investors face mounting pressure for both the return and deployment of capital.

Resilient Market Sentiment – Despite ongoing geopolitical tension, a “soft” economic landing appears to have been achieved and the fear of a significant recession is no longer a major point of concern for buyers.

Transaction multiples declined ~2.1x through H1 2024 following Q4 2021 highs; leverage has also declined as underwritten equity cushion requirements remain elevated.

Interest rates are finally projected to come down over the next 12 months, bringing relief to investors with pressure to deploy capital.

This was kicked off by a half-point rate decrease in mid-September –   the first slash since March 2020.