Fedor Schulten, managing director at Goldman Sachs in Zurich, reported that private equity firms are withdrawing from deal auctions at a rate of up to 50%. This trend marks a significant shift in the M&A landscape, driven by higher interest rates that have increased the cost of leverage for financial buyers.
Strategic corporate buyers are currently dominating the market, as they can utilize cash reserves or stock to outbid private equity firms. Unlike financial buyers, corporations can leverage operational synergies, allowing them to pay premiums and move faster during the auction process.
Recent data indicates that private equity firms accounted for less than 20% of total M&A deals in Switzerland, representing the second-lowest share in eight years. Many firms are struggling with assets acquired during the pandemic era, as they are unwilling to sell these holdings at current valuations.
The slowdown in exits is impacting limited partners, including pension and sovereign wealth funds, who are receiving fewer distributions. This environment is forcing private equity firms to shift their strategies toward proprietary deal sourcing, minority stakes, and alternative liquidity solutions like continuation funds.
