Is the private equity dry powder keg ready to burst?

Challenges and opportunities abound

It’s no secret that there will be highs and lows in capital markets, but when it comes to private equity investors putting their capital to work, they’re a little more cautious today than they were 12 months ago. The uptick in interest rates is one challenge. Debt markets and a potential recession are examples of others. Despite this gloomy macroeconomic landscape, private equity dry powder—the amount of capital available for investment—is still near the highest levels on record. Moreover, private equity funds have investment mandates to satisfy; therefore, it is safe to say that this capital needs to be put to work.

Interestingly, we are seeing a shift in direction from large-scale M&A transactions to much more focused behavior. Our clients continue to look for tuck-in and bolt-on acquisitions, and we have seen private equity firms shift their focus from top-line growth to portfolio company optimizations. This has manifested in an uptick in digital transformations and restructuring activity, which we will discuss further in this episode of Deloitte’s M&A Views podcast series.

We’ve seen tremendous capital accumulation in the private equity space over the years, and I think that’s a testament to the value that private equity has created at the portfolio company level and that accrues to the benefit of the investors.

— Adam Reilly

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