Rising leverage costs and volatile valuations driven by economic downturns and increasingly tight monetary policy are the greatest challenges facing the private equity industry, according to the 2023 Dechert Global Private Equity Outlook report.

The US, like other regions in 2022, saw the PE buyout market shift down a gear, with the number of transactions in the region declining by 15% and their aggregate value sinking 43% in the first nine months of the year, compared to the same period in 2021. In the US, the number of buyouts across this period totaled 2,081 with a value of US$333.4bn. Among PE leaders, this trajectory is expected to continue into 2023 and beyond, driven by tightening credit conditions and broader economic dislocation. On the bright side, the market share of buyouts as a proportion of overall M&A activity continues to grow with the percentage share approaching 25% in the Americas through Q3 2022, according to data from Refinitiv.

More than 40% of US respondents said valuation and economic uncertainties were among the top two challenges the PE industry faced. The data, published today, in association with Mergermarket, surveyed more than 100 senior-level executives within PE firms based in North America, EMEA, and Asia-Pacific (APAC). This is Dechert's 5th annual Global Private Equity report.

Despite this, the global volume of transactions remained surprisingly robust. General Partners (GP) remained highly active on all but the largest transactions: "There is always something going on in the middle market, whether it is new platform deals or add-on acquisitions. Even though the amount of capital being invested has fallen, private equity has really demonstrated its resilience," said Dr. Markus P. Bolsinger, co-head of Dechert's global private equity practice and partner in the firm's New York and Munich offices.