There’s more evidence that deal valuations finally seem to be falling to match buyer appetites. Recent comments from executives at publicly traded private equity firms like TPG show that anecdotal evidence of softening valuations could be widespread.
“The current market reset is presenting us with a range of investment opportunities at more interesting valuations, and our pipeline of actionable opportunities is growing at a time when there are fewer competitive sources of capital such as IPOs and SPACs,” said TPG CEO Jon Winkelried on last week’s conference call.
It’s a take that might resonate with smaller financial sponsors as well. After a punishing year of acquiring assets at ever-higher deal multiples, firm managers tell me buyers have regained a bit of leverage. Middle-market private equity firms increasingly see market turbulence as an opportunity to secure reasonable valuations in sectors otherwise valued frothily. Firms are still pursuing targets in their typical geographic, Ebitda, and sector strike zones, but are showing less willingness to stretch on valuation.
Indeed, private advisers of all stripes have capitalized on recent volatility, with credit fund managers deploying direct loans at a record clip as rates on leveraged loans rise.
Market turbulence doesn’t read as all good news for the industry. TPG joins a host of private equity firms notching returns due to exits into a high valuation environment; that strategy won’t be available should the market-wide selloff continue.
Time will tell whether moderating valuations could give buyers greater runway to hit returns.
–Brandon Zero
