Recession risk, rate rises drive down private equity deal volumes to 4-year low
By Patturaja Murugaboopathy
June 26 (Reuters) - Dealmaking by private equity firms hit its lowest in four years, under pressure from high interest rates, recession fears, and a weak outlook for corporate earnings, although some analysts predict stored-up funding will drive a near-term rebound.
Private equity deal volumes slumped 63% from the same period last year to $293.5 billion, data from Dealogic showed.
Higher borrowing costs have led private equity to pursue fewer deals and avoid businesses with unpredictable cash flows.
Since the start of the year, buyout firms have been unable to secure cheap debt and have had to draw on their own funds, marking a departure from traditional leveraged buyouts.
"Rising interest rates have made private equity deals more expensive. Inflation has cut into target companies' profit margins," said David D'Urso, a partner at U.S. law firm Akin Gump Strauss Hauer & Feld. "Sellers are still expecting 2021-type valuations, which is not possible (due to the above reasons)."
Some analysts said an unfavourable market for initial public offerings (IPOs) contributed to the slowdown as private equity firms found it harder to exit investments.
This has complicated the financing environment for companies and startups that typically get bought or rely on funding from private equity firms, when banks have also slowed down corporate lending, analysts said.
"The implication for companies seeking private equity funding is simply less capital to go around, which could cause the weaker companies with short cash runways to be unable to continue operations," said Matt Farrell, senior investment manager at WE Family Offices.
Euro zone bond yields fall as economic outlook darkens
LONDON, June 26 (Reuters) - Euro zone bond yields fell on Monday as weak German survey data added to doubts about the health of the euro zone economy, after surveys late last week showed faltering business growth and services activity for the bloc.
Europe's bond markets showed little reaction to the aborted insurrection against the Russian state launched by mercenary chief Yevgeny Prigozhin over the weekend, with investors instead focused on European data.
"Sentiment in the German economy has clouded over noticeably," Ifo's president Clemens Fuest said.
The German 10-year yield fell 13 bps on Friday after survey data caused concerns about the health of the euro zone economy. Yields move inversely to prices.
- One sign of those economic concerns is the deep inversion of Germany's yield curve, with longer-dated yields well below those on shorter-dated debt, suggesting investors think rate cuts are coming.
- European Central Bank policymakers will gather in the hills of Sintra, near Lisbon in Portugal, from Monday for the institution's annual forum.
U.S. Federal Reserve Chair Jerome Powell, Bank of England Governor Andrew Bailey, and Bank of Japan Governor Kazuo Ueda will speak along with Lagarde at a panel on Wednesday.
No comments:
Post a Comment