Platform LBO Activity Surges in 2024: Interest Rate Cuts and Increased Lending Spark Private Equity Deal Boom

In the first three quarters of 2024, platform leveraged buyout (LBO) activity has made a notable comeback, driven by private equity (PE) managers reigniting dealmaking efforts. PitchBook’s Q3 2024 US PE Breakdown shows a 28.4% increase in LBO deal value year-over-year, reflecting renewed interest in platform acquisitions. A platform LBO typically involves a private equity firm acquiring a company with a mix of debt and equity, setting the stage for future growth through follow-on acquisitions. The resurgence in activity can be attributed to several key factors, including lower interest rates, bank reentry into LBO lending, and sponsor-to-sponsor exits.

The Federal Reserve’s long-awaited interest rate cut in Q3 provided a crucial catalyst for this uptick in activity. Reduced borrowing costs encouraged private equity firms to proceed with acquisitions, as lower interest rates made financing deals more affordable. Kyle Walters, a private equity analyst at PitchBook, highlighted that some managers moved forward with acquisitions despite higher initial interest rates, betting on future refinancing opportunities. This proactive approach reflects growing optimism among dealmakers as borrowing costs decline, setting the stage for continued deal-making momentum.

A high-profile example of this trend was Blackstone and Vista Equity Partners’ joint acquisition of Smartsheet, a project management software provider, in a take-private deal valued at $8.4 billion. Vista, known for its focus on tech deals, partnered with Blackstone to spread the risk and capital for the large transaction. This illustrates how established partnerships are being leveraged for significant deals.

The report also noted a gradual resurgence of banks competing with private credit lenders to finance LBOs. Loan value in LBOs doubled from $28.6 billion in 2023 to $50.8 billion year-to-date, indicating increased competition between traditional banks and alternative lenders.

Sponsor-to-sponsor exits have also become a prominent trend, accounting for nearly 55% of all exits in Q3 2024, a departure from the usual dominance of corporate exits. This shift provides private equity firms with additional opportunities to sell assets between firms, creating a dynamic exit environment.

Despite these positive developments, the market remains cautious. While lower interest rates and renewed bank lending have bolstered activity, challenges persist, and the industry is not entirely out of the woods. PE managers remain vigilant, carefully navigating the evolving financial landscape as they pursue new opportunities and platforms for growth.