How does private equity deal volume fare in a recession?

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The degree of slowdown can vary, but on paper it’s a bad one for PE

1) Rates going in the opposite direction means it’s increasingly expensive to lever up. PE firms will inherently be constrained to lower valuations on platforms and add-ons. They will be increasingly uncompetitive with platforms.

2) Market valuations in general are falling. A recession will force some firms / business units to sell out of necessity, but many sellers will prefer to wait things out and are not going to be running to bankers to initiate sale processes.

The above together means they’ll be getting fewer CIMs, and not be nearly as competitive in such processes. So the focus becomes getting their portfolio companies through the downturns.

The M&A mix will lean more strategic than normal until rates start to come down, which may take a while.

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Insightful summary!

Bad

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Not all recessions created equal, though generally poorly.

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It’s slowing down

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Very slow. Our PEs told their portcos to focus internally, because the debt markets are effectively closed.

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How does it fare for consultants working with PE firms?

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1. Lowered DD opportunities
2. Fewer DDs go the distance. They’ll keep looking at stuff, but they’ll stop after Phase 1/preliminary DD more consistently
3. Since they’re less competitive in processes and won’t be buying as much, firms may direct budget away from new opportunity BD/DD and towards portfolio company optimization (pick an angle)

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Is this industry dependent? How does this affect the life science PE industry?

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