ECI’s predictions for 2024

While 2023 has been a very positive year for ECI, with our new fund and a run of successful exits, it has undoubtedly been a year of change and challenge for the private equity industry. While value creation has been given a new lever through generative AI, 2023 will likely be remembered as a year of geopolitical and economic instability. As we reset once again to a ‘new normal’ we ask the ECI team what their predictions are for 2024 and the private equity market.

Tom Wrenn, ECI

Tom Wrenn on the UK Mid Market:

“There remains a large amount of dry powder in the market. We’ve just raised ECI 12, achieving its £1bn hard cap, off the back of a great run of exits, so we are in a good place with lots of available capital to deploy over the next three years and a small portfolio. Across the market as a whole though, deal-making has undoubtedly slowed due to economic uncertainty with many funds pushing out their fundraising in the hope of better times and delivering some exits before then.  As a result, I expect activity to pick up pace next year as investors will need to get back to investing and funds will need to show exit activity, which is ultimately good for business growth and good for the economy.”

What we saw this year was that the UK had interest rate normalisation back to pre-financial crisis levels earlier than the U.S. and Europe, and the PE market still needs to fully adapt to the new world of higher interest rates. Investors that have proven track records on resilience are the ones that can thrive. The threshold of what they’re looking for will become higher in terms of predictable revenues, diversification, the impact of inflation of FX rates, etc, but there are still plenty of opportunities to invest in exceptional businesses. GPs will have a higher threshold for quality and will need to work harder to generate their returns. But that is our job – to genuinely add value – and investors that can do that consistently will have a better opportunity to differentiate themselves.”

Mark Keeley, ECI

Mark Keeley on North West investment:

“We are in a period of pent-up demand from private equity and it remains a sellers’ market. The macroeconomic environment is leading investors to increase their focus on resilience, not just growth. The businesses that can display both remain in high demand, but short supply. This means we have seen prices stay at historical highs and processes fiercely competed for the best opportunities. I don’t see this changing in the short term but over time the tightening fundraising environment is likely to mean some investors exit the market for new deals. This should not be a major concern for the North West market where there remains plenty of dry powder available from long-standing, highly reputable investors. Having an established presence in the North West creates an exciting opportunity for us given the significant number of quality businesses in the region, particularly in the technology sector.

What is on my wish list for 2024? I would like to see business leaders adopting a positive “can do” attitude to take advantage of the growth opportunities that exist. This positive mindset has enabled the North West to successfully reinvent itself throughout economic cycles meaning the region is well served by forward-thinking businesses that have exciting futures both on a national and international level. There is a lot of talk about the need for material investment in infrastructure, and clearly, this would be welcomed, but my experience is that the region is pushing ahead and making things happen without relying on central Government initiatives.”


Jeremy Lytle on the fundraising market:

“The global fundraising market has had a challenging 12 months as investors have reacted to rising interest rates and higher inflation. As we enter the final month of 2023 the combination of many private market investors being overallocated to the asset class and having less capital returned to them has led to the toughest fundraising market since 2009.

In terms of the outlook for 2024, we expect investors to continue to put a premium on managers who have stronger DPIs than their peers and increasingly many LP investors are now wary about NAV facilities or other ‘synthetic’ forms of DPI as General Partners look to return capital to investors. The slower pace of deployment combined with the continued scarcity of LP capital will deter some managers from returning to the fundraising market in H1 2024. It might also lead to LPs becoming more wary of committing to first closings in some funds. Choosing your timing on when to come back to the market is more important now than it has been in the past 15 years and driving early momentum is critical.

However, the long-term, structural tailwinds benefiting private equity as an asset class remain strong, and although LPs are not currently seeing an increase in distributions from their General Partners, the worst of the well-documented denominator effect now seems to have passed and we may have passed the nadir of the current fundraising cycle. We would be more optimistic about 2025 versus 2024 but GPs that have been in the market this year will be keen to close out LP allocations in H1 2024.

Brett Pentz on the view from the US:

The US macro environment and growth outlook look strong, so it is a compelling market for expansion for European firms. The US has been a bit less affected by some of the economic shocks of the wider world, and it’s an economy that has got back to growth faster post-Covid, so if firms can sell into the US, it’s an extremely attractive market. We have certainly seen a greater percentage of our portfolio over time explore US opportunities for this reason and I expect to see this accelerate in 2024.

This time two years ago we were seeing a trend of US-trade and US-PE increasingly ‘shopping’ for assets in the UK market. This trend will rebound after slowing in the short-term, especially for firms that can demonstrate a cohesive opportunity in the US, despite exits being down overall with a bit more caution in the market. That said, the mid market is outperforming VC and large cap, so I would say we will see an increasing share of exits going to US buyers in 2024.”

Fiona Moore on ESG:

“I predict that ESG in 2024 will see both progress and regression. I think on the positive side, companies and investors have spent a lot of time over the last few years putting in frameworks, collecting data, and setting goals on what they want to achieve. 2024 feels like a year where we can expect to see real progress on actual initiatives beyond data collection and refocus the conversation on ESG around value and impact, rather than data, compliance, and regulation – that is my hope anyway! When I see the expectations from LPs, management teams, employees, and customers, I feel excited about the potential for change. We don’t have much time to turn back the tide on climate change, but there is momentum and it is fantastic to see so many of us in the investment industry leading the charge.

On the less optimistic side, I expect you will also see more scepticism in 2024, which we’re already seeing in the US with anti-ESG divestments and accusations globally of greenwashing. With 2024 the biggest election year in history, there will be political motivations and quick wins that unfortunately are unlikely to work in the planet’s favour. It is the responsibility of the investment industry to make sure  they’re behaving well around ESG claims, demonstrate why this is so important and that it is a key part of a sensible approach to risk and investing, and evidence the value in ESG.”  

Skyler Ver Bruggen, ECI

Skyler Ver Bruggen on the M&A market:

While interest rates have had a dampening effect on bolt-on market activity in 2023, my prediction would be that in 2024 that will have become the ‘new normal’ and the number of acquisitions in the market will increase. Founders considering a sale will still have the same push factors that mean M&A is an attractive exit opportunity – whether that is the increased regulatory burden they’re facing, personal reasons such as a change in lifestyle post-pandemic, or policy changes they want to get ahead of. Often these factors are not linked to the economic cycle and are more related to changes in their subsectors or individual circumstances, and those who held off in 2023 may well come back to market in 2024 now things are more settled.  

I don’t expect we’ll see a spike in M&A ahead of a potential election, given that Labour has not proposed changes to Capital Gains Tax, but if that changes or if there are any other policies announced which make a future exit opportunity look less attractive, you may see a surge in Founders looking to sell ahead of that impact. 

For the companies that we back, the pull factors remain as compelling as ever. That might be launching into new geographies, buying in new capabilities, or synergies and cross-sell opportunities. With organic growth potentially looking more challenging in the current environment, strategic M&A offers a fantastic value lever, so it’s no surprise that the majority of our portfolio are actively pursuing opportunities, and I look forward to supporting them in executing their pipelines in 2024!”

Duncan Ramsay, ECI

Duncan Ramsay on the tech & data outlook

“While 2024 will be a year of trial and error as businesses understand which generative AI use cases deliver value, I suspect by this time next year most companies will have found their feet. The launch of Microsoft Copilot will place the power of the technology right into the workforce, and it will be important to justify which uses and users justify incurring the additional licensing costs. There is a lot of hype that emerges from generative AI, so it’s important to be pragmatic and focus on value.

With efficiency and quality of outcomes on everyone’s agenda, 2024 will also see further shift away from on-prem applications and manual internal processes, as the power of the cloud and SaaS applications reign supreme.”

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