Year-End Macro View

2021 is poised to close on an exciting note. U.S. private equity deal-making is on pace to eclipse $1 trillion before the end of the year, according to a report by and data from Pitchbook. Here are some of the big takeaways we’re paying attention to:

Inflation is there, but likely ok for many sectors

While much of the news is bullish for future deal-making, inflation remains high, with the Consumer Price Index (CPI) posting a 5.3 percent year-over-year gain in August. There are some signs that the supply chain, materials, and labor bottlenecks are beginning to subside, so we’ll be watching to see how that unfolds after the holiday rush calms. Long-term inflation could make it more difficult for highly leveraged portfolio companies to keep pace with their interest obligations. High-growth tech firms may also be exposed to the effects of inflation because future cash flows would be discounted at a higher rate. However, according to Chris Taylor, CEO of Madison Capital Funding and Head of New York Life Investments Alternatives, digital transformation, and the SaaS business model’s strength should help buoy tech valuations for the near future. The Federal Reserve intends to begin tapering its bond-buying program soon, a sign that rate increases may not be far off.

Tax law continues to be a hot topic

Since the 2020 presidential election, PE firms have been eagerly taking advantage of the deal flow caused by business owners looking to get ahead of a potential capital gains tax hike. This dynamic can be seen most clearly in our space, the middle market, where a more significant proportion of deals are for companies with no prior backing. Pitchbook also reports seeing deals for some large family-owned companies, likely timed with the tax legislation in mind (e.g., the $34.0 billion buyout of Medline Industries, a primarily family-owned company).

2022 looking strong, pace may slow slightly

Pitchbook analysts predict 2022 may see the busy pace of deal-making slow somewhat, as one public PE firm has reportedly started mandating paid time off for its exhausted team. That said, many of the underlying deal speed drivers, including robust economic growth, cheap debt, and a relatively new precedent for doing deals faster, are likely to remain.

Direct lending funds are posting strong fundraising numbers, focusing specifically on the middle market, where leveraged buyouts are primarily financed through private credit. This suggests PE firms will have access to ample capital for some time. 2022 is likely going to be another exciting year.

Trying to understand where your mid-market business may fit into this landscape? Please contact us for a confidential discussion of your specific situation. We have experience helping business owners across a variety of industries sell their businesses, as well as relationships with buyers who are interested in new opportunities.

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