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BCG: Private Equity Infrastructure Investment Gains Momentum

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Private equity investment in infrastructure is showing renewed strength as macroeconomic uncertainties stabilize, according to the latest Infrastructure Strategy 2025 report by Boston Consulting Group (BCG).

According to BCG, the private infrastructure market, which has navigated fluctuating deal volumes in recent years, reached an all-time high of $1.3 trillion in assets under management as of June 2024, a strong indicator of investor confidence in the asset class.

Although fundraising remains below its 2022 peak, infrastructure funds secured $87 billion in 2024, reflecting a 14% year-over-year increase. Meanwhile, transaction volume declined by 8%, following a 19% drop in 2023. Despite this, large-scale transactions in the digital infrastructure and energy transition sectors may suggest a rebound as investors look to reinvest capital and capitalize on emerging transaction opportunities.

A notable trend in infrastructure investment has been the growing interest in digital assets, particularly data centers. With AI and cloud computing demand surging, investments in data centers soared to $50 billion in 2024, a substantial rise from $11 billion in 2020. At the same time, energy transition investments, including renewable energy and battery storage, continue to attract funding.

“Infrastructure remains a cornerstone of private investment strategies, offering stability and inflation protection in volatile markets,” said Wilhelm Schmundt, a managing director and senior partner at BCG and the firm’s lead for infrastructure investment. “As investors adjust to a maturing market, we see significant opportunities emerging in energy transition, digital infrastructure, and new investment structures designed to attract capital.”

Private equity and infrastructure funds are adapting to these shifts through industry consolidation, expanded investment mandates, and operational efficiencies.

Within the infrastructure sector, mergers and acquisitions (M&A) have become a key strategy for general partners, with some funds scaling up into diversified infrastructure platforms while others focus on specialized sector-specific plays. New fund structures, including continuation vehicles and sector-specific funds, are also gaining traction, providing limited partners with more tailored investment opportunities. As governments increasingly turn to private capital to bridge infrastructure funding gaps, co-investment opportunities are also expected to rise.

“Private investment will be critical to modernizing infrastructure and meeting the world’s growing connectivity and energy needs,” said Alex Wright, a managing director and partner at BCG. “With capital deployment expected to accelerate in 2025, we anticipate a more dynamic investment landscape, particularly in AI-driven infrastructure, renewables, and smart grids.”

A PDF of BCG’s Infrastructure Strategy 2025 report can be accessed HERE.

© 2025 Private Equity Professional | March 18, 2025

Private Equity on the Rebound

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A global private equity (PE) revival is taking shape as dealmaking gains traction, though sluggish fundraising continues to present challenges, according to Bain & Company’s 16th annual Global PE Report. The report highlights a resurgence in both buyout investments and exits, reversing the sharp declines of the previous two years.

Private equity investment values surged 37% year-on-year to $602 billion in 2024, excluding add-on deals, fueled by pent-up demand from general partners (GPs) eager to deploy aging dry powder and an improving economic environment as central banks reduced interest rates. Exit activity also rebounded, with global exit value climbing 34% to $468 billion and exit counts increasing 22% to 1,470. This shift marked a welcome thaw in a previously stagnant exit market that had constrained liquidity and delayed capital returns to limited partners (LPs). However, the industry still faces macroeconomic uncertainties that could impact sustained momentum in 2025.

“2024 can be considered the year of the partial exhale. Whether the renewed impetus in 2024 can build will depend on how policy unfolds,” said Hugh MacArthur, chairman of Bain’s Global Private Equity Practice. “We think the headwinds that have held back activity since mid-2022 should continue to dissipate. The industry is anxious to make deals, GPs are finding creative ways to boost liquidity, more dollars should flow in from sovereign wealth funds and private wealth and returns remain strong. But deal appetite is still tempered by the uncertainties keeping markets on edge. Investors are looking for clarity to break through the policy clouds on the economy, trade, regulation, and geopolitics.”

Bain’s report underscores that while dealmaking has picked up, the private equity landscape is undergoing significant structural changes that will shape competition for investment opportunities and capital. Rising costs to generate market-beating returns, heightened fee pressure, and fierce competition for deals are among the key challenges. Despite these hurdles, the industry has demonstrated resilience and adaptability, positioning itself for future growth as economic conditions evolve.

“Generating alpha has never been more challenging. Strong performance is getting harder, not easier. An emerging upturn will inevitably present important opportunities for investors. But the winners will be those funds that demonstrate a consistent, differentiated model for value creation – and clear strategies for maintaining growth and performance for the long term,” said Rebecca Burack, head of Bain’s Global Private Equity Practice. “The surest way to land in the winner’s circle is to articulate your ambition clearly and develop a practical strategy for how you plan to compete in the years ahead.”

Take-private transactions dominated the high end of the PE market, rising to $250 billion globally in 2024 and accounting for nearly half of deals over $5 billion in North America. The technology sector remained a primary focus for private equity, comprising 33% of buyout deals by value and 26% by volume, with strong activity also seen at the intersection of technology and healthcare. Financial services deal value surged 92% year-on-year, while industrials saw an 81% increase.

The rebound in exits in 2024 provided further optimism, with a 141% surge in sponsor-to-sponsor transactions totaling $181 billion, driven by a 48% increase in deal size. Strategic sales to corporate buyers remained flat, while initial public offering (IPO) activity continued to lag, making up only 6% of exit value. Despite this progress, the exit environment remains a key impediment to strong returns, with distributions as a proportion of private equity’s net asset value sinking to 11%—the lowest level in a decade, down from an average of 29% between 2014 and 2017.

The fundraising environment remained challenging, declining for the third consecutive year in 2024. Private asset fundraising fell 24% year-on-year and is now down 40% from its all-time peak of $1.8 trillion in 2021. The number of funds closed dropped 28% to 3,000, significantly below pre-pandemic levels. LPs have become increasingly discerning, directing capital toward the largest and most experienced funds with proven track records, while smaller and lower-performing funds struggle to meet targets.

Bain also highlighted the evolving role of artificial intelligence (AI) in private equity, with firms aggressively investing in AI capabilities to drive portfolio performance. “With AI evolving at a breakneck pace, Bain cautions that it is not a panacea, nor is there a ‘one-size-fits-all’ approach. But it concludes that learning by doing is the key to harnessing AI’s potential to drive operational efficiencies and enhanced revenues in PE firms and within their portfolios,” the report states.

As private equity firms navigate a competitive and shifting landscape, Bain’s report concludes that those poised to succeed will need to define clear competitive advantages and long-term strategies. With rising costs, regulatory shifts, and evolving investor expectations, firms must take a proactive approach to differentiate themselves and position for sustained growth in the years ahead.

Click HERE to access Bain & Company’s Global Private Equity Report 2025.

© 2025 Private Equity Professional | March 4, 2025

M&A and JV Activity in Private Credit: What the Trend Could Mean for Borrowers

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The State of the Game
The private credit arms race has taken the industry landscape by storm, with Ken Moelis citing the shift as the “greatest change in the history of transactional finance.”[1] Already enjoying years of measured growth, when banks and the broadly syndicated loan market stepped back from lending in 2023 due to market volatility, private credit stepped up, cementing private credit’s position as a force in financing markets. This has created a very active M&A and joint-venture market that does not seem to be slowing anytime soon.

BlackRock made headlines in late 2024 through the firm’s acquisition of HPS Investment Partners, backed by their expectation that the private debt market will more than double to $4.5 trillion by 2030.[2] While BlackRock’s acquisition dominated the news cycle, other firms have already made it their prerogative to jump into the private credit pool. In late 2024, Wendel Group acquired a majority stake in Monroe Capital, and Third Point (Dan Loeb’s hedge fund) acquired AS Birch Grove. In late 2023, TPG bought Angelo Gordon, and going even further back, Eldridge Industries acquired a majority stake of Maranon Capital in 2019. Eldridge recently announced a rebrand of its combined private credit vehicles, including Maranon and Stonebriar Commercial Finance, as “Eldridge Corporate Credit.”

The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit.

Banks have also taken the plunge to offer product and garner revenue lost within their traditional lending and leveraged finance practices (most notably broadly syndicated loans or “BSL”). Wells Fargo and Centerbridge Partners joined forces in late 2023, PNC and TCW Group followed suit, and then in September 2024, Citibank and Apollo created a direct lending program with a goal of financing “approximately $25 billion of debt opportunities over the next several years, encompassing both corporate and financial sponsor transactions.” [3]

Consolidation Drivers
What is driving the push towards consolidation and bank / private credit partnerships occurring in the market? The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit. It has even been a more favored asset class over private equity in the last few years (though the markets are intertwined). Fundraising for private credit reached $207B through Q3 of 2024, an increase from $193B over the same period in 2023, while average vehicle size approached $1.2B, marking 2024 as the first year for average vehicle size to eclipse $1B.[4] Meanwhile private equity was on pace for its lowest annual fundraising total since 2020, having raised only $234B through September.5

Additionally, private credit is increasingly competitive against (and in some instances more attractive than) BSLs. From 2022 through 2024, private-credit-financed buyouts outnumbered BSL financed deals 6 to 1. To compete against the BSL market, private credit needed significant size and scale, and the sector has done just that — 40%+ of private debt capital raised was for funds over $5B, while five years ago, only 20% of capital was for funds over $5B.[5]

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension.

Lastly, the dearth of overall M&A activity over the last 12 – 24 months has provided the perfect environment for dealmaking at the fund level. A respite offered by relatively slower activity and deployment caused managers to explore and execute on transformational initiatives such as acquisition(s) for scale and / or Joint Venture(s) to broaden offerings.

The Good, the Bad and the Ugly
Regarding the upside for borrowers, the primary benefit is that investment in the market means more capital, which results in more competition and better terms. Additionally, the upper end of the market will be deeper than it has been historically.

The bad? The shift could result in a turnover in deal teams, specifically regarding who covers the deal. The team that closes a deal may not necessarily manage the relationship going forward.

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension. These nascent alliances will require a delicate balance between investment banking divisions, leveraged finance departments, commercial and corporate lending, sales and trading desks, ancillary banking offerings (e.g., hedging, treasury), fund financing, and more. In an ultimate downside scenario, could this lead to a Volcker Rule 2.0? The original legislation, of course, limited banking entities’ relationships with private equity funds.

In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage.

Additionally, the traditional capital directed towards the middle market may get lighter. Private credit, which used to focus on smaller deals, has moved upward to compete in the BSL universe. Funds are moving up market for $100 – 200M minimum check sizes, leaving a shrinking number of players in the $30 – 75M size range.

Lastly — the ugly. As with any deal, not all of them are successful. Unfortunately, some mergers and JVs have significant integration issues and could leave borrowers scrambling for the next step. Onex’s 2020 purchase of Falcon Investment Advisors lasted less than four years, as Onex divested its majority stake of the ~$4B AUM credit fund in Q3 2024.[6] Similarly, Voya divested Czech Asset Management less than three years after acquiring the ~$5B AUM direct lender. Although the Onex/Falcon separation was due to synergies across the remainder of Onex platforms failing to materialize (and no rationale has yet been provided for Voya / Czech), other “break-ups” could be much worse and have a spillover effect for borrowers.

Considering the Above
While it’s an exciting time for participants in the private credit market with increased activity and interest, there are, of course, factors that may affect sponsors and borrowers. In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage — which in turn lends itself to better terms and best execution. With new funds forming, investment parameters shifting, and consistent lender velocity, broad coverage of the lender universe will require more investment of time and attention.

About the Author
James Bardenwerper is a Director at Configure Partners, where he joined in 2018 as an Associate. Before joining Configure Partners, he was at Genuine Parts Company, supporting merger and acquisition efforts and strategic planning. He began his career as an Analyst at SunTrust Robinson Humphrey (now Truist Securities), where he spent three years advising clients on debt and equity capital raises across various industries.

James received a bachelor’s in finance from the University of Kentucky. He is a FINRA General Securities Registered Representative (Series 79, 63).

Footnotes:
1 – Ken Moelis, Unplugged in New York
2 – BlackRock to Acquire HPS Investment Partners to Deliver Integrated Solutions Across Public and Private Markets
3 – Citi and Apollo Announce $25 Billion Private Credit, Direct Lending Program
4 – Private Debt Investor Fundraising Report Q3 2024
5 – Pitchbook Q3 2024 US PE Breakdown, Configure Partners Private Credit Quarterly
6 – Onex Hands Control of Private Credit Unit Falcon Back to Its Managers

© 2025 Private Equity Professional | January 9, 2025

Are M&A Deal Parties Turning Away from Reps & Warranties Insurance? 

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RWI usage is declining[1] for deals closed in 2024, including among Private Equity buyers.[2] When an M&A deal requires more carveouts for things like survival periods and caps and special escrows to cover RWI policy exclusions and limitations, deal makers are reevaluating the structure and cost of indemnification. Additionally, RWI may not provide a safety net expected by the sellers.

The Bottom Line
Deal parties have learned from the data that using RWI can add time and complexity to an M&A deal, both in negotiating the indemnification provisions and navigating post-closing indemnification claims. Every M&A deal is unique, and whether RWI is right for a transaction should be a case-by-case evaluation. Deal parties are now taking a closer look at whether RWI is best suited to meet their respective needs.

What the Data Says
Fewer deals today use RWI. After a high-water mark in 2021, a year when buyers often needed to find ways to sweeten their bids in a very competitive M&A landscape, RWI has been purchased on fewer deals each year. So far in 2024, RWI usage is down across all buyer types and deal sizes.[2]

Not all M&A deals are a good candidate for RWI. RWI is more common on “cleaner” M&A exits, such as deals with higher values, a higher return-on-investment, longer exit timelines, fewer management carveouts, and “no survival” of the seller’s general reps & warranties.[5]

Indemnification provisions between buyers and sellers are more carefully negotiated as buyers seek additional protections.

Deals with RWI are more likely to have special escrows[3], typically to cover policy exclusions and caps. This data can be especially helpful when setting expectations with sellers during deal negotiations. Deals with RWI tend to have smaller escrows, and the median size of the general indemnification escrow is 0.5% of transaction value. However, when you factor in additional special escrows, and that buyers are successfully adding such escrows on nearly 50% of deals with RWI, the median aggregate amount escrowed on these deals is 2.5% of transaction value.[4]

Last but not least, deals with RWI are more likely to have post-closing indemnification claims, especially because of the way these policies are structured: buyers (i.e. the insured) are motivated to burn through the retention (i.e. insurance deductible) quickly.[6] When coverage under the policy does come into play, indemnification claims run through RWI take longer to resolve. Whereas about half of claims handled by RWI are resolved within 12 months, closer to three quarters are resolved within that time when handled by a professional shareholder representative.[7]

Buyers are Reacting, Adapting
Smart and agile M&A deal parties evaluate market data, like that above, and stay ahead of emerging trends. In 2021, a record-setting year for M&A deal volume, buyers were often faced with expedited timelines and may not have been able to perform full due diligence. A few years later, deal parties are experiencing the effects of lax diligence (e.g., a huge increase in post-closing indemnification claims for breach of the “no undisclosed liabilities” seller representation [8]). Lessons were and continue to be learned.

Declining RWI usage indicates that the M&A market is still adapting, with deal parties carefully assessing the use of RWI on a case-by-case basis. 

With the pace of dealmaking significantly slower these past two years, buyers have taken advantage of the time to conduct more thorough due diligence, to which RWI underwriters are also privy. As a result, indemnification provisions between buyers and sellers are more carefully negotiated as buyers seek additional protections. RWI can sometimes provide coverage for the additional matters uncovered during due diligence, but not always. Sellers can find themselves agreeing to carveouts and special escrows for which they are still directly responsible in addition to the cost of RWI.

Private Equity Buyers and RWI
It is no secret that PE buyers are more likely to consider RWI when compared to other buyer types. Changes in RWI utilization, and related trends for deal terms relevant to RWI, are less dramatic year-over-year with PE buyers. It’s worth noting when there are shifts involving PE buyers.

For example, when strategic buyers were using RWI less and less in 2022 and 2023, PE buyers remained relatively consistent, with RWI identified on about 65% of deals. So far in 2024, however, RWI usage among PE buyers is down.[2]

One thing is clear, deal parties are getting more efficient at identifying when RWI might work as intended and when it might not.

Interestingly, several M&A practitioners have recently mentioned cases where PE buyers negotiate the deal as if there will be RWI, but at closing the PE buyer elects to skip the premium cost to purchase the policy and instead essentially decides to self-insure. (i.e., carefully evaluating the structure and cost of indemnification).

Going Forward
Declining RWI usage indicates that the M&A market is still adapting, with deal parties carefully assessing the use of RWI on a case-by-case basis. Lessons emphasizing the importance of due diligence suggest that buyers will maintain thorough diligence practices, even as market activity increases. Meanwhile, indemnification provisions are expected to remain a focal point of negotiation

As we begin to see more deal activity in the latter part of 2024 and into 2025, especially from PE buyers and sellers, it will be even more important to keep an eye on these RWI trends. The market is adapting and adjusting as more information and data about RWI becomes available. One thing is clear, deal parties are getting more efficient at identifying when RWI might work as intended on their M&A deal and, perhaps more importantly, when it might not.

About the Author
Kip Wallen is a senior director leading the SRS Acquiom thought leadership practice. He leverages his extensive expertise and SRS Acquiom proprietary data to produce resourceful content regularly utilized by market practitioners. Kip has broad experience in M&A and provides guidance on market standards and trends.

Previously, Kip was a Director with the SRS Acquiom Transactional Group, where he collaborated with clients and counsel to negotiate M&A documents including purchase, escrow, payments, and other transactional agreements. Before joining SRS Acquiom, Kip was an attorney with a Denver-based boutique business law firm where he assisted clients with M&A transactions as well as general corporate governance and securities matters.

Kip is an avid supporter of the Colorado Symphony, serving on the Associate Board and Colorado Symphony Fund Board, and the Colorado Rockies. He is an active participant on the American Bar Association’s M&A Committee. In 2016, Kip completed Leadership 20 with the Denver chapter of the Association for Corporate Growth.

Kip received his J.D. from the Sturm College of Law at the University of Denver and an M.S. in Economics, B.S. in Economics and B.A. in International Relations from Lehigh University. He is a member of the Colorado bar.

Footnotes:
[1] Source: 2024 RWI Highlights: Effect of Reps and Warranties Insurance on M&A Deal Terms (“SRSA RWI Highlights”).
[2] Source: 120+ deals closed in 2024 on which SRS Acquiom serves as the Shareholder Representative. Some 2024 data is available at SRS Acquiom MarketStandardTM
[3] Source: SRSA RWI Highlights.
[4] Source: SRSA RWI Highlights.
[5] Source: SRSA RWI Highlights.
[6] Source: 2024 SRS Acquiom M&A Claims Insights Report.
[7] Source: SRSA RWI Highlights (including data from the presentation “Aon R&W Insurance Claims”).
[8] Source: 2024 SRSA M&A Claims Insights Report.

© 2024 Private Equity Professional | December 20, 2024

Grant Thornton: Increased Deal Volume on the Way

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The latest survey from Grant Thornton reveals that private equity professionals are forecasting a rise in transaction volume, despite the uncertainty surrounding the upcoming U.S. presidential election.

The survey, which polled 255 M&A professionals, found that 67% of respondents anticipate increased deal volume over the next six months. Despite high interest rates, M&A professionals cited several factors contributing to stronger deal activity in the latter half of the year.

Respondents pointed to a demand for technological advancements as a driver for deals. Sixty percent identified technology, media, entertainment, and telecommunications as key sectors for M&A activity in the coming six months. Healthcare and energy followed, ranking second and third with 34% and 31% of respondents, respectively.

Private equity (PE) firms also indicated plans to participate. Many PE firms have been holding cash, waiting for better opportunities. However, some firms may soon face pressure to return capital to investors if they do not deploy funds. Additionally, firms that have held portfolio companies for extended periods are feeling the need to sell to provide returns to investors.

Although 77% of PE respondents were optimistic about the performance of their portfolio companies over the next 12 months, 54% of PE and corporate respondents admitted to holding assets for longer periods than usual.

Vic Sandhu, a managing director at Grant Thornton, noted that investors can become restless when assets are held for longer durations. “Buyers are going to find opportunities where valuations are slightly depressed in some subsectors, while others may see valuation increases,” said Mr. Sandhu. “This reflects productivity changes and growth in certain sectors.”

However, the survey also highlighted continued challenges in securing financing.

Financing Remains Uncertain
High interest rates have created turbulence in the M&A landscape. Constraints in the lending environment have led respondents to close fewer deals, increase the equity portion in financings, and explore alternative financing structures.

Among those exploring new avenues, 85% are considering preferred equity and debt structures, while 55% are turning to investments from specialized private funds.

Tom Libeg, principal at Grant Thornton, observed that bankers are spending more time developing creative financing solutions. “I’ve seen more deals where firms collaborate and explore alternative structures to close transactions,” said Mr. Libeg. “Later, they may consider different recapitalization options.”

Interestingly, M&A professionals remain divided over whether lending conditions will improve. While interest rates are expected to drop, 34% of respondents predict a more constrained lending environment over the next 12 months, while 40% expect fewer constraints.

According to Mr. Sandhu, transaction volumes will rise sharply if interest rates decline significantly. If not, M&A activity will likely see a slower, long-term recovery.

“When buyers identify premium assets, they move quickly to involve service providers and differentiate their bids by offering speed and certainty in closing,” said Kosta Kourakis, a principal at Grant Thornton. “As the market heats up and more deals arise, the ability to act swiftly will become a key differentiator.”

Caution Surrounding the Election
While many M&A professionals are confident that deal volume will rise over the next six months, 40% indicated pausing deals until after the U.S. presidential election in November.

Roughly half of respondents said the election would not impact their deal-making, while 10% reported accelerating M&A processes to close deals before the election.

According to Sandhu, buy-side and sell-side professionals in industries vulnerable to regulation and market uncertainty tend to hold off on deals until after the election. “If businesses cannot withstand economic disruptions, it makes sense to pause deals until after the election,” said Mr. Sandhu. “A clearer political landscape can lead to more informed decisions, potentially resulting in better deal outcomes.”

Respondents ranked four factors regarding how they might be affected by the election. Nearly half (49%) said the election’s impact on the overall economy would have the greatest influence on M&A activity. Twenty-five percent highlighted regulatory policy, while 21% pointed to tax policy. The impact of trade policy was ranked as less critical.

The survey was conducted in July, before Joe Biden withdrew from the presidential race, and Kamala Harris became the presumptive Democratic nominee against Republican Donald Trump.

Founded in Chicago in 1924, Grant Thornton is the U.S. member firm of Grant Thornton International, one of the world’s largest audit, tax, and advisory firms. The firm generates over $2.4 billion in revenue and operates over 50 offices with over 600 partners and 9,000 employees.

To view the full results of the Grant Thornton survey, click HERE.

© 2024 Private Equity Professional | September 17, 2024

Bain & Company: Private Equity Finds a Footing

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According to Bain & Company’s 2024 Private Equity Midyear Report, the two-year long slump in global private equity looks finally to be bottoming out with the industry finding a footing from which to climb back.

But while private equity activity appears to have arrested its freefall, Bain cautions that it remains subdued by historical standards – especially relative to a $3.9 trillion mountain of available dry powder ($1.1 trillion of this committed but uncalled capital in buyout funds).

Prospects for revival remain tentative with momentum still scarce. Among positive signals for prospects, the private equity industry’s precipitous slide in both deal-making and exits over the past two years largely levelled off in the first months of 2024.

Globally, private equity’s buyout transaction count through May 15 was down 4% on an annualized basis versus 2023, putting it on track to finish the year broadly flat compared with last year’s tally. Buyout transaction’s global value is on track to finish the year at $521 billion, up 18% from 2023’s $442 billion – but with the rise driven by a higher average deal size – $916 million, up from $758 million – rather than more deals.

Private equity is at an important turning point with dealmaking and activity now picking up.

Private equity exits also looked to have halted the steep declines of the past two years. The total number of buyout-backed exits is tracking flat on an annualized basis, while exit values are trending to finish 2024 at $361 billion, registering a 17% rise from 2023 – but still leaving this year shaping up as the second worst for private equity exit values since 2016.

In a further indication of steadily reviving optimism over the outlook, Bain also reports that informal discussions with general partners (GPs) globally suggest that deal pipelines are already beginning to refill, with many sighting “green shoots” of a recovery emerging. GPs’ latest observations are more upbeat than in Bain’s most recent March survey of 1,400 private equity market participants which found that 30% did not expect a dealmaking resurgence until Q4 of this year, with close to 40% expecting that to take until 2025 or beyond.

Yet while Bain’s report notes that 2024’s final tally of transaction value will likely approach that of the buoyant years before an anomalous post-pandemic spike in 2021, it suggests that it is too soon to assume a “return to normal”, with a sustained upswing in activity, given the series of key challenges that confront the private equity.

“With the year having got off to a better start we’ve been cautiously optimistic about 2024’s outlook. We’re seeing that validated with the data that’s coming through, as well as other indicators, showing that PE is at an important turning point with dealmaking and activity now picking up. So, we see better prospects emerging,” said Rebecca Burack, the global head of Bain’s private equity practice. “But the challenges facing the industry, for example around interest rates, value creation, and especially the exit logjam and the need to respond to pressure to get capital back to limited partners (LPs), mean this year will also be an important inflection point in other ways, too, as GPs look to get the wheel spinning once again.”

Adjusting to the ‘new normal’ imperative amid higher rates and an array of challenges
Bain’s Private Equity Midyear Report maps out an array of critical challenges that private equity firms are under pressure to address urgently, from prolonged uncertainty over the macro-economy and interest rates that look set to stay higher for longer, to continuing geopolitical turbulence, to the sector’s exits gridlock. Bain urges that private equity firms need to move quickly and decisively to adapt to a changed market – rather than expect a rapid resumption of business as usual, as seen before the market slowdown over the previous two years.

“The imperative is to adjust to the ‘new normal’,” said Hugh MacArthur, the chairman of the global private equity practice at Bain. “It typically takes 12 months or more for a boost in exits to produce a turnaround in fund-raising – so even if dealmaking picks up this year it could take until 2026 before the fundraising environment really improves. So, in a hotly competitive market for capital, private equity firms need to make decisive moves to change the narrative. They need to use this time to take a clear look in the mirror and understand how limited partners really see their fund and then to translate those insights into stronger performance and more competitive positioning. Importantly, that includes sharpening value creation – in an environment of higher rates the premium is going to be on producing margin and revenue growth in portfolio businesses.”

Exits gridlock persists, multiplying pressure to return more cash to LPs and hampering fund-raising
The continuing deep freeze afflicting private equity exits is a critical area of pressure highlighted in the report. It finds that the continued low level of exits, leaving private equity firms sitting on trillions in unsold and aging assets, is making life increasingly uncomfortable for GPs in multiple ways.

Crucially, Bain notes that the prolonged slump in exits is preventing the return of capital to LPs that are increasingly pressing for a rise in current low levels of distributed-to-paid-in capital (DPI). In turn, LPs’ dissatisfaction over distributions is impeding new fund-raising with investors focusing new commitments on a narrower swath of favored funds. A recent poll by the Institutional Limited Partners Association showed only a small minority of LPs were satisfied by the urgency GPs are placing on increasing liquidity.

One brighter spot for exit prospects is a reopening of the initial public offering market.

The impact on fund-raising means that the environment for private equity to secure new capital remains a tale of haves and have-nots. Through May 15, private equity has raised $422 billion in capital versus $438 billion over the same period last year. The trend suggests fundraising will reach an annualized $1.1 trillion in 2024 – marking a 15% drop from the previous year. Buyout funds are dominating the fund-raising landscape, with $199 billion raised up to May 15, and the category set to reach a tally of $531 billion by year-end, a 6% rise from 2023’s total.

Bain highlights that while the overall fund-raising figures look relatively robust, LPs’ increasing focus on a narrowing swath of favored fund managers means that in buyouts the 10 largest funds closed took in some 64% of total capital raised so far this year, with the largest single fund – the $24 billion EQT X fund- accounting for 12%. As a result, the bulk of buyout funds are left to battle over the remaining 36% of capital available and at least one in five buyout funds is closing under its target.

One brighter spot for exit prospects is a reopening of the initial public offering market, sparked by a surge in public equities over the past six months that has also relieved some liquidity pressures on LPs, today’s report notes. But while a revived IPO market has produced several large exits in Europe, the report adds that IPO exit channel still represents only a sliver of exit totals, with the corporate deals and sponsor-to-sponsor exit channels still largely flat.

Persistent macro nerves and rate-related operational challenges keeping dealmakers cautious
Persistent macro-economic and geopolitical uncertainties, with still-elevated global interest rates that may not be lowered as much as expected this year, also remain a persistent drag on private equity’s revival prospects. Bain notes that still-elevated rates are keeping dealmakers cautious, distracted, and wary on either side of transactions – while also aggravating the challenge of managing rate-related issues within existing portfolios.

Interest rates that have stayed higher for longer have also raised the stakes for funds in holding assets over longer periods in the face of the declining exits. Balance sheets have come under pressure from the increased cost of debt financed by adjustable-rate loans so that portfolio managers are spending increasing time in negotiation with lenders and managing operational issues, with this then acting as a brake on new dealmaking activity.

Against this backdrop, and with a full-blown revival in fundraising and overall private equity activity likely to take a number of months to come through, Bain’s analysis advocates for firms to implement determined action to fully understand their LP investors’ expectations and needs – and to develop a comprehensive plan across their portfolios to meet those requirements and deliver value.

For a copy of Bain’s 2024 Private Equity Midyear Report click HERE.

Bain & Company, a global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm has 65 offices in 40 countries  and is headquartered in Boston.

© 2024 Private Equity Professional | June 4, 2024

Life Outside the Forties: Navigating Political Risk

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If you studied corporate finance or portfolio management 20 years ago, “political risk” tended to refer to a country’s stability in government and the transparency/integrity of its capital markets.

Those considerations still matter, but the deep polarization of government in the United States and other industrialized economies has given added weight to another kind of risk.

Business managers, investors and analysts now must assess the optionality of radically different standards in law, regulation and administration based on who is in power in a given jurisdiction.

THE PROBLEM

An article in The New York Times last month made the case well, at least as it relates to environmental policy:

“Government policies have always shifted between Democratic and Republican administrations, but they have generally stayed in place and have been tightened or loosened along a spectrum, depending on the occupant of the White House.

But in the last decade, environmental rules in particular have been caught in a cycle of erase-and-replace whiplash.

“In the old days, the regulatory days of my youth, we were going back and forth between the 40-yard lines,” said Douglas Holtz-Eakin, who directed the nonpartisan Congressional Budget Office and now runs the American Action Forum, a conservative research organization. “Now, it’s back and forth between the 10-yard lines. They do it and undo it and do it and undo it.”

Economists and business executives say this new era of sharp switchbacks makes it difficult for industries to plan. If there is anything that companies like less than government regulation, it is an unstable business climate…

In the past four months, the Biden administration has strengthened or restored rules that Mr. Trump had deleted, including regulations to cut greenhouse emissions from cars and oil and gas wells; to limit the pollution of toxic coal ash; to protect the habitat of the sage grouse and other endangered species; and to tighten safety controls at chemical plants. All of these rules are likely to be weakened or rolled back once again under a new Trump administration.”

This volatility is of course not limited to the environmental arena. Federal tax and regulatory policy have always featured some oscillation between Democratic and Republican administrations, but the pendulum swings are more pronounced than ever.

For clients of my M&A firm and other private business owners, there is always sentiment in favor of lower taxes and less regulation, but the strongest sentiment may be for greater certainty.

THE DATA

Measuring political risk is big business, but it’s difficult to find metrics that drill in on volatility, as opposed to the stability and functionality of political institutions and capital markets.

The World Bank’s Worldwide Governance Indicators (WGI) project “constructs aggregate indicators of six broad dimensions of governance.” One of the six – government effectiveness – “reflects perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.”

Here is the data for the world’s 15 largest national economies at five-year intervals through 2022, the most recent year for which data is publicly available. Estimates of government effectiveness range from approximately -2.5 (weak) to 2.5 (strong). Green denotes positive movement from 2012 to 2022, red negative movement.

Over the 2012-2022 period, Canada, Australia, the United Kingdom, Germany, the United States, France, and Spain maintained positive scores but saw a decline in government effectiveness. Among countries with 2012 scores above 1.0, only Japan, South Korea, and Australia improved their positions.

Policymaking Volatility Becomes a Macroeconomic Burden

The New York Times article goes on to cite Costa Gavriilidis, a Scottish researcher who developed a U.S. Climate Policy Index after watching the United States join, leave, and rejoin the Paris climate agreement in just over five years.

“[Gavriilidis’] research shows that whenever the index shoots up to about 50 points, it creates an economic shock of such magnitude that it leads to a 1.5 percent decrease in industrial production, a 0.4 percent increase in unemployment, a 2 percent increase in commodity prices and a 0.4 percent increase in consumer prices, reflecting the fact that producers incorporate the risk of higher production costs associated with uncertain climate policy into their prices.”

This, of course, is a non-diversifiable market risk.

Non-diversifiable Market Risk Translates into Higher Required Returns

Let’s take electric vehicles as an example. Over the next few years, will the United States continue to incentivize their production and purchase? Will there be a return to support for fossil fuels? What will be the federal government’s position on domestic mining of the rare earth minerals that go into lithium-ion batteries? The answers to all three questions depend on political outcomes.

Here are the current five-year Betas for two traditional car manufacturers looking to evolve into battery-operated vehicles, and the two principal electric vehicle market entrants.

Setting aside Tesla, the spread in Beta between GM/Ford and Rivian is about .35. Considering that market-neutral beta is 1.0, that is a substantial swing. The prospect of binary political outcomes is not the only factor contributing to the marked difference in perceived volatility – and thus in required return – but it is clearly one factor dampening the valuations of the publicly traded OEMs concentrated in a new and politically contentious industry.

THE IMPACT ON PRIVATE COMPANIES

Privately owned businesses are not subject to daily public valuation, but they are subject to the same valuation methods. Public comps come into play even more directly if a company’s owner is a private equity fund or other investment company required to do quarterly “mark-to-market” valuations.

What is the impact on private investment activity in businesses affected by policy volatility? There can only be two answers. First, if the impact on required return is moderate, valuations in a given sector decline; and second, if the impact is greater, investors wait until policy direction clarifies.

Between now and the November election, in politically contentious sectors like electric vehicles, the sidelines will be a popular place.

About the Author
Andy Greenberg is CEO of Greenberg Variations Capital, a mergers & acquisitions advisory firm based in suburban Philadelphia devoted to one-off or targeted transactions. Mr. Greenberg was founder and CEO of GF Data©, the M&A data tracking service, prior to its acquisition by the Association for Corporate Growth in 2022. For more information, visit www.greenbergvariations.com.

© 2024 Private Equity Professional | May 23, 2024

Capstone: Middle Market Participants are Optimistic for a Recovery in 2024

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Capstone Partners has released its 2023 Middle Market M&A Valuations Index which shows that while equity markets largely shrugged off the rapid succession of interest rate hikes in 2023, middle market merger and acquisition valuations experienced downward pressure.

According to Capstone, elevated transaction costs, uncertainty over projected cash flows, and a reserved private equity buyer pool contributed to average M&A valuations falling to 9.6x EV/EBITDA in 2023, compared to 9.9x in 2022. Several transactions at premium valuations helped to bolster this average, while the median EBITDA multiple fell more drastically to 8.0x EV/EBITDA compared to 8.5x in the prior year.

While business owners encountered a challenging valuation environment, several bright spots of the market have provided optimism for resilience and recovery in transaction value in 2024. Notably, average three-year EBITDA purchase multiples in the business services, fintech and services, industrial technology, transportation, logistics and supply chain, and technology, media and telecom sectors improved on a year-over-year basis.

Many dealmakers are optimistic that 2023 marked a trough for both middle market M&A volume and pricing, with 2024 positioned to experience a rebound in purchase multiples.

Buyers demonstrated heightened discipline in middle market M&A processes in 2023, refraining from overextending themselves to acquire target companies. While high-quality assets still commanded solid buyer interest and competition in bidding, market clearing bids were less frequent than in prior years.

In 2023, 31% of transactions closed at 10x EBITDA or higher—a decline from 38% in 2022 and 43% in 2021. This may have coincided with buyers moving to lower levels of the middle market, a common occurrence amid market uncertainty. The average enterprise value of sold target companies amounted to $89.4 million, a substantial drop from $139.3 million in 2022. When buyers did pay premium multiples, typically these businesses had demonstrated gross margin defensibility, healthy revenue visibility, and sustained product or service demand.

Capstone further reports that many dealmakers are optimistic that 2023 marked a trough for both middle market M&A volume and pricing, with 2024 positioned to experience a rebound in purchase multiples.

Private equity buyers, facing limited partner pressure to generate returns, are expected to reenter the M&A markets in 2024.

Seller and buyer expectations are anticipated to become more aligned after such dislocation post-pandemic, when purchase multiples at times became detached from fundamentals. For the first time in nearly a decade, the cost of money is meaningful, and likely will be for the near future as the Federal Reserve works to meet its mandate. However, quality companies with sound financials and resilient end markets are poised to garner buyer appetite.

Private equity buyers, facing limited partner pressure to generate returns, are expected to reenter the M&A markets in 2024 after sitting on the sidelines for much of 2023. The valuation environment may take some time to recover, but the M&A and macroeconomic environment in 2024 is expected to present a favorable backdrop for many prospective sellers to achieve an optimal exit.

Capstone’s investment banking services include M&A advisory, debt and equity placement, corporate restructuring, special situations, valuation and fairness opinions and financial advisory services. The Boston-headquartered firm was acquired by Huntington Bancshares in June 2022 and has more than 175 employees.

To download a copy of Capstone’s Middle Market M&A Valuations Index click HERE.

© 2024 Private Equity Professional | March 26, 2024

Lincoln Private Market Index Closes 2023 at a Record High

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The Lincoln Private Market Index (LPMI), which tracks changes in the enterprise value of US privately held companies, increased by 0.6% during the fourth quarter of 2023, resulting in the index ending 2023 at another record high.

According to Chicago-headquartered investment bank Lincoln International, the LPMI’s increase was directionally in line with the movement of the S&P 500, which increased 9.1% since the third quarter. During 2023, the S&P 500 soared by 22.7%, while the LPMI climbed only 5.5% but demonstrated greater stability over the year. The public index was buoyed by multiple expansion in its seven largest companies whereas the engine behind the LPMI’s growth was strong operating performance, as multiples declined for the third consecutive quarter.

“Revenue growth has declined, but interestingly EBITDA growth has been strong as businesses took measures to protect and even grow their profitability.”

While publicly traded companies, which generally have lower leverage than private companies, have benefitted from multiple expansion, private equity-owned business valuations continue to face downward pressure from high-interest rates as investors attempt to offset elevated acquisition financing costs against sustainable leverage and internal return hurdles. The average EBITDA multiple of new buyout transactions that closed in the second half of 2023 was 11.8x (for transactions tracked in Lincoln International’s proprietary private market database), which remains a far cry from the peak average multiple of 13.4x which occurred in Q4 2021.

Leveraged buyout volumes in 2023 were depressed as sellers and buyers remained locked in a tug-of-war. Sellers remain reluctant to part with their investments at lower valuations than those seen at the height of the market in 2021 and early 2022, and buyers have held out for investment opportunities that reconcile their return requirements with the burden of high financing costs. In the absence of larger platform acquisitions, dealmakers are instead focusing their efforts on add-on acquisitions, which represented 35% of all transactions observed by Lincoln in the second half of 2023, an increase from 21% at the end of 2021.

While Revenue Growth Moderated, EBITDA Growth Persevered
For the fourth consecutive quarter, revenue growth declined slightly for private companies tracked in Lincoln’s database, although roughly 70% of all companies experienced revenue growth, approximating the three-year trailing average. Margins, however, have held up despite pressure on the top line. EBITDA growth for the same group was 4.8% year-over-year in the fourth quarter, compared to 4.2% in the third quarter. While revenue growth in the aggregate has slowed, portfolio companies are stemming the tide by cutting costs and focusing on strengthening profitability. In the fourth quarter, revenue growth exceeded EBITDA growth by 3.0%, the slimmest gap since 2021, as companies found creative ways to keep EBITDA afloat while addressing contracting demand.

“Revenue growth has declined, but interestingly EBITDA growth has been strong as businesses took measures to protect and even grow their profitability,” said Steve Kaplan, a professor at the University of Chicago Booth School of Business, who assists and advises Lincoln International on the LPMI. “Businesses were able to stave off numerous headwinds since the beginning of 2023, and the resiliency they exhibited is evidenced by the LPMI’s growth despite multiple contraction in the private markets.”

Competition in Private Credit Kicks Up
The Lincoln Senior Debt Index (LSDI) ended the year flat from the third quarter at an average fair value of 97.9% and was modestly elevated from 96.3% at the end of 2022. Interestingly the index’s stable median loan-to-value (LTV) of approximately 40% since 2021 contrasted with the index’s increase in yield from 8.0% to 11.4% over the same period, which might suggest lenders are getting a higher return for the same level of risk thanks to rising reference rates. Investors, however, are taking these higher returns with a grain of salt as they attempt to balance higher returns with slimmer-than-ever portfolio company fixed charge coverage. At the end of 2023, the constituent population’s weighted-average fixed charge coverage ratio was 1.07x, which has crumbled from 1.57x at the end of 2021.

Between the third and the fourth quarter, Lincoln observed approximately 25 basis points of tightening in unitranche credit facilities, while competition also manifested itself through tighter original issue discount requirements and looser covenants. Whereas in the third quarter, spread tightening was mostly observed for transactions involving businesses with greater than $40 million of EBITDA, tighter spreads seeped into transactions for smaller businesses in the fourth quarter. As the broadly syndicated loan (BSL) market, which generally offers lower-yielding loans than private credit, starts to open, stiff competition has surfaced as larger lenders are forced to hunt for smaller, higher-yielding credits to deploy capital.

“Competition has increased, and lenders are being forced to sharpen their pencils,” said Ron Kahn, a managing director and co-head of Lincoln’s valuations and opinions group. “But with so few high-quality assets and the re-opening of the BSL market, where lenders deploy the plethora of capital they have at their disposal remains the biggest challenge.”

“While default rates remain relatively low at 3.4%, fixed charge coverage remains slim and there is an expectation for more defaults and stress on the system,” continued Mr. Kahn. “To properly assess where the credit markets are today, you need to look at fixed charge coverage relative to LTV and returns.”

While cash flow and cash interest remain paramount, borrowers and lenders agreed to forego cash interest in lieu of paid-in-kind (PIK) interest at a higher clip in the fourth quarter, as approximately 10% of new private credit issuances in 2023 included a PIK component, nearly doubled from the end of 2021.

PIK interest can often have a negative connotation and is sometimes viewed as indicative of borrowers being unable to service cash interest; however, the reasons for using PIK interest are more nuanced. Lenders are now offering PIK interest as a competitive edge in the pricing process, emblematic of broader pricing competition in the market.

Incremental Facility Pricing Tightens in the Fourth Quarter
Private lenders thrive on a strong LBO market, and the decline in buyout volume has hampered private credit to an extent, but add-on acquisitions have remained robust. As incumbent lenders offer financing for these add-ons, market competition is beginning to manifest itself as incremental facilities are issued at lower pricing, deeper in the capital structure. In the fourth quarter, Lincoln observed an increase in incremental senior and unitranche issuances to existing structures, and pricing was approximately 50 bps lower than the existing facility, on average.

Investors Eye Prospective Deal Resurgence in Second Half of 2024
The prospect of higher levels of mergers and acquisitions activity in 2024 may hinge upon the future of interest rates. Managing debt service costs while investing in future growth has been top of mind for portfolio companies and will continue to be a focal point for businesses in 2024 as rates remain elevated. The recent hint of rate cuts indicates that lower cost of debt could be on the horizon, but lenders remain skeptical that the downward-sloping yield curve declines observed in 2023 will be realized. Underwriting professionals have not been considering expected declines in the curve and have continued to assume higher interest rates in their models.

“With performance holding up, the biggest hurdle to surmount in 2024 for ramped-up dealmaking will be the alignment of buyer and seller expectations.” 

Based on a recent survey of more than 100 private market professionals conducted by Lincoln International, over 84% of survey respondents are anticipating transaction volume to tick up by the end of 2024, with more than half indicating a realignment between buyer and seller valuation expectations will drive deal flow. Conversely, 78% of respondents believed that covenant default rates would increase in 2024. While lenders, sponsors and businesses will need to grapple with more adversity, many left 2023 with newfound optimism.

“Amidst a sluggish deal environment in 2023, private companies demonstrated resiliency,” concluded Mr. Kahn. “With performance holding up, the biggest hurdle to surmount in 2024 for ramped-up dealmaking will be the alignment of buyer and seller expectations. Limited partners expect a return on their capital, and general partners need to deploy capital.”

Lincoln International provides mergers and acquisitions advisory, private funds and capital markets advisory, and valuations and fairness opinions. The firm is headquartered in Chicago and has more than 20 offices in 15 countries.

Follow this LINK to see the full Q4 2023 Lincoln Private Market Index report.

© 2024 Private Equity Professional | February 16, 2024

Grant Thornton Sees Big Capital Need in Tech Sector

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Grant Thornton’s new Tech CFO Survey reveals how chief financial officers at technology companies plan to achieve growth in the coming years despite fierce competition and other challenges.

The Tech CFO survey, which polled 150 senior finance executives in the technology industry, also gauged sentiment on major topics like artificial intelligence (AI), cybersecurity and the technology workforce.

One of the survey’s key findings was the clear need for more capital. In fact, 91% of survey respondents said they will need to raise capital in the next two years, while nearly two-thirds (65%) said they needed to raise capital within the next 12 months. These capital raises are necessary to meet rising costs. For instance, 71% of technology CFOs said they expect IT/digital transformation expenses to rise in the next 12 months, while 61% said the same for their cybersecurity and risk management efforts.

According to the survey, private equity may be called upon to fill this capital need as more than 90% of survey respondents said they are seeking private equity investment.

The technology industry isn’t alone in its preparations for higher costs. Grant Thornton’s third quarter CFO survey, which covered multiple industries, revealed that 58% of CFOs expect to increase their spending on IT/digital transformation. That figure was the highest percentage in its category since the first quarter of 2021.

These cost expectations align with what technology CFOs describe as their biggest challenges over the next six months. Specifically, 56% of technology CFOs said their greatest challenge will be technology upgrades, while 51% said their greatest challenge will be cybersecurity.

“When I take a step back, what technology companies are trying to do is control costs and measure growth,” said Andrea Schulz, Grant Thornton’s national managing partner for technology. “A lot of what I’m hearing in the market is about increasing the margin on existing product and service offerings, getting net income up to either breakeven or beyond and making sure that companies are showing profitability and growth.”

According to the survey, private equity may be called upon to fill this capital need as more than 90% of survey respondents said they are seeking private equity investment.

When asked what moves they will make to enable growth in the next one to three years, more than one-third (35%) said they plan to merge or acquire other companies. But, according to the survey data, several strategies will be more popular than mergers and acquisitions.

The survey also revealed a clear focus on culture with 45% of respondents saying that improving their organization’s culture will be a key priority over the next 12 months.

Fifty-nine percent of technology CFOs said they plan to launch new products or services. What’s more, 57% said they plan to expand into new markets or geographies, while 52% said they are striving to increase market share or their customer base.

“All three of those strategies are very capital-intensive,” said Ms. Schulz. “And each one has very different risks. You’re basically starting from scratch if you’re launching a brand-new product or service — it’s a high risk at that point. If that’s your growth structure, you might need to step back and understand whether you have the customer base. It’s potentially a startup phase product line. It might not manifest the growth that you were envisioning in year one to three.”

When asked how they expect the economy to impact their workforce in the next six months, nearly two-thirds (65%) of survey respondents said a slower economy will lead to high retention rates. However, half (50%) of respondents said they expect continued difficulties in attracting and retaining the right talent, and nearly one-third (31%) said the state of the economy could lead to layoffs.

Still, survey respondents are clearly making moves to keep their people. Over half (53%) of survey respondents said attracting and retaining key talent was their top workforce priority, and nearly half (47%) said they will prioritize employee work/life balance issues. The survey also revealed a clear focus on culture: 45% of respondents said maintaining or improving their organization’s culture will be a key priority over the next 12 months, while the same percentage said managing a hybrid workforce will be a major focus.

Many people are running too far ahead of where AI currently is in its practical deployment. They’re envisioning what it could be.”

According to Ms. Schulz, a “salary reset” is in the works in the technology industry. “Technology companies are searching for top talent at a reasonable price,” she said. “Revenue per head is now also a very popular metric to help rationalize labor costs and show that companies are not overinflated on the labor costs that they have.”

Investment in AI
Part of a technology CFO’s strategy is, of course, investing in the right technology. In terms of which technology these CFOs plan to invest in, there’s a clear frontrunner: artificial intelligence (AI).

In fact, 61% of survey respondents said their companies will invest in AI in 2024, and the same percentage of CFOs said they will use AI to enhance customer experiences and engagement. Meanwhile, 54% of technology CFOs said they will use AI to improve their decision-making and insights, while a similar number (51%) said they will use AI to automate routine tasks and processes.

Ms. Schulz noted that companies are wise to look to AI for ways to strengthen their business, but she cautioned that the immediate ROI some companies seek may be further away than they think. “There is an opportunity for companies to transform and look more streamlined, but that might be years out,” she concluded. “Many people are running too far ahead of where AI currently is in its practical deployment. They’re envisioning what it could be.”

To download a free copy of Grant Thornton’s Tech CFO survey click HERE.

Founded in Chicago in 1924, Grant Thornton is the US member firm of Grant Thornton International, one of the world’s largest audit, tax and advisory firms. The firm has revenues of more than $2.4 billion and operates more than 50 offices with more than 600 partners and 9,000 employees.

© 2024 Private Equity Professional | January 18, 2024

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