Karessa L. Cain and Victor Goldfeld are Partners, and Charles C. See is an Associate at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell memorandum by Ms. Cain, Mr. Goldfeld, Mr. See, Andrew Nussbaum, Steven Cohen, and John Sobolewski.
Despite the challenges the year presented for investors (rising interest rates, tumultuous financial markets, geopolitical upheaval, etc.), private equity showed resilience in 2022. Deal activity declined from 2021, but finished the year above pre-pandemic levels. Although fundraising similarly slowed, sponsors still closed 2022 with approximately $2 trillion in dry powder. And while private equity continues to face headwinds in 2023, market dislocations often provide compelling opportunities for the most thoughtful and sophisticated investors. Now more than ever, creative financing and careful transaction planning are essential.
We review below some of the key themes that drove private equity deal activity in 2022 and our expectations for 2023.
Acquisitions and Exits
Deal Activity Down From 2021, But Above Pre-Pandemic Levels. As we described in our recent memo, Mergers and Acquisitions—2023, after a record-shattering year for M&A in 2021, last year represented a reversion to the mean.
- Deal volumes down. Announced global private equity M&A deal volume declined from $2.1 trillion in 2021 to $1.4 trillion in 2022, with dealmaking tapering in the second half of the year as credit markets weakened and became more volatile. Private equity’s share of overall M&A volume was steady year-over-year (approximately 36%), and deal volume in 2022 exceeded the pre-pandemic level of $1 trillion in 2019.
- Public buyout boom continues. While aggregate deal volume shrank, sponsors were active in public company buyouts in 2022, supported by the significant decline in public company market valuations and sponsors’ desire to deploy large amounts of capital. 2022 capped a two-year take-private boom, with 2021 and 2022 each, by both deal count and value, marking the highest levels of public company buyout activity since the 2008 financial crisis.