This article was updated Oct. 24 to add an expert’s comment.
Platform LBO deal activity has rebounded in the first three quarters of 2024, as private equity managers start to rev up their dealmaking engines.
According to PitchBook’s Q3 2024 US PE Breakdown, platform LBOs witnessed a 28.4% YoY value increase compared to the first three quarters of 2023, with one quarter remaining for dealmakers to snap up additional targets in 2024.
A platform LBO involves a private equity firm acquiring an established company using a mix of debt and equity, laying the foundation for future growth through follow-on acquisitions.
Managers took a proactive approach in dealmaking as Q3 offered a long-anticipated interest rate cut by the Fed. Lower rates reduce the cost of capital used to acquire companies for use as platforms.
“The cost of capital is starting to trend downward, and prior to that there appeared to be a level of confidence among firms that rates would decrease,” said Kyle Walters, an associate PE analyst at PitchBook.
“For those that identified a target company, some have chosen to pull the trigger now, accepting higher initial interest rates with the intention to refinance later on. This thought process and plan of action will likely continue as the cost of capital declines, leading to more optimism in dealmaking.”
In Q3, Blackstone and Vista Equity Partners teamed up in acquiring Smartsheet, a project management software provider, in a take-private transaction valued at $8.4 billion.
Vista, which typically pursues tech deals independently, sought to split the equity and risk on the large transaction with Blackstone, leveraging an established partnership between the firms.
In addition to the Fed’s interest rate cut, there has been a gradual reentry of banks into lending to LBOs, in competition with private credit lenders, with loan value doubling from $28.6 billion in 2023 to $50.8 billion YTD.
Kirkland & Ellis corporate partner Willard Boothby noted another encouraging sign for the LBO market: “One thing I’m seeing very recently is an increase in sponsor-to-sponsor control trades, which has been much more muted over the last 24 months.”
The report notes that sponsor-to-sponsor exits accounted for nearly 55% of all exits in Q3, deviating from the trend of exits to corporates dominating the market, presenting an opportunity for GPs to pursue asset sales.
Although private equity has witnessed some platform LBO deals come to fruition due to the interest rate cut and banks reestablishing their lending position, the market is not completely out of the woods.
Last week, PitchBook reported that PE dealmakers remain cautious as they continue to contend with weakening corporate performance, political uncertainties, and a sluggish fundraising climate.
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