Following strong dealmaking in 2021, private equity investments have slowed down significantly so far in 2022. While there is still plenty of capital going around, firms are being more selective with a possible global recession looming over the market. Dealmakers are looking to wait out the market in hopes of a further decline in valuations.

Baring Private Equity Asia says it is passing on as much as $6 billion in deals as the firm only intends to invest in assets that will continue to earn revenue and do well with the uncertain economy. The firm is waiting for valuations to drop and will look to technology software, healthcare, education and industrial technology.

Baring is not the only firm to see the writing on the wall. “I’m not sure why, but PE activity has certainly declined,” Garrett Bekker, 451 Research’s principal research analyst told Mergers & Acquisitions. “One guess would be that financial sponsors are being more selective in their dealmaking as financing costs rise.”

Bekker notes that consolidation in the cybersecurity industry has ramped up in 2022 as a result of dropping valuations. The cybersecurity industry, one that is of note to Baring, has seen a 10 percent increase in deal closings in the first half of 2022 versus the same time period in 2021. The industry boasts an increase in deal volume but with lower-sized deals, representing a decrease in valuation pushing these types of transactions.

Despite an uncertain future, Baring is still fresh off its recent $11.2 billion BPEA VIII fundraise, its largest to date. With valuations beginning to decline and take-private deals becoming more available, the firm is not jumping at the first opportunity it sees.

As Baring waits out for deals targeting annual returns of 20 percent it will be interesting to see how falling valuations affect investment in cybersecurity and technology industries.

Let me know how you think the current market conditions may or may not affect private equity transactions at [email protected].

-Cole Lipsky