Sector Report

Capital Markets Update 2024 Outlook

Our Capital Markets Update 2024 Outlook includes the latest industry trends, macro developments, private market deal activity, a healthcare spotlight, and Bourne’s insights.

The 2024 economic outlook is improving with inflation nearing the Fed’s 2% target and pending rate cuts. Despite a challenging year for M&A in 2023, we anticipate a rebound in 2024, driven by a realignment of value between buyers and sellers, more favorable leverage, record levels of PE dry powder, and a resumption of PE exits driven by pressure to return capital to LPs. In light of the ever-evolving business landscape, we have curated a Capital Markets Update to share our insights into the anticipated developments of 2024.

Key takeaways include:
  • Macro Developments: There is a lot to be hopeful about as inflation inches down to the Fed’s target of 2% and the market prices in six rate cuts in 2024, beginning in Q2. As consumer sentiment continues to positively grow, low unemployment and strong consumer spending have bolstered the economy. US onshoring continues to be a theme, riding on the coattails of domestic investment, while geopolitical and regulatory scrutiny threaten to hamper market conditions and the dealmaking environment.
  • Healthcare M&A: Though not immune to the overall decline in deal activity, PE Healthcare specialist fundraising is on track to record their best year ever in terms of cumulative dollars closed, raising $17.6B through Q3 2023. The sector has seen significant benefits from an increasing number of specialized funds and investor interest, which has in turn expanded our sponsor coverage to over 200 firms.
  • Deal Activity Recap: In 2023, PE deal activity declined significantly, marking it the worst year since 2017 due to costly debt markets stalling LBOs. However, dry powder grew to top $955B, which sits ready for deployment. Valuations slowly reset as bid-ask spreads narrowed, particularly in growth equity deals.
  • Deal Activity Outlook: In 2024, we anticipate an increase in deal activity as PE firms respond to selling pressure from LPs. PE exit activity will likely skew later in the year as the economy stabilizes. Companies with refined profitability engines, decreasing borrowing costs, and ample PE dry powder are set to drive the next wave of deals.
  • Healthcare Operating Environment: Despite the overall decline in healthcare deal values in 2023, biopharma M&A remained resilient. However, 2024 is likely to see a shift towards prioritizing internal R&D, with big pharma alone projected to invest $91B. While the funding environment for biopharma has improved, it favors later-stage pipelines. This trend is favorable for clinical service providers. However, pharma service providers that are heavily reliant on phase 1 and biotechs are expected to face sustained headwinds.

We hope you find this information valuable. If you’d like to discuss further, please reach out to our Research Team.

View our 2023 1H Capital Markets Update here.

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