Despite the present turbulent economic and political environment, investors are cautiously optimistic about the outlook for private equity in 2023. With private equity houses holding record levels of "dry powder" (i.e., committed capital to PE funds which has not yet been deployed into investments), it is anticipated they will be looking for new opportunities to utilise this capital in the year ahead.

Against the backdrop of that tough economic environment, it is likely that private equity firms will be making adjustments to their investment strategies in order to capitalise on the opportunities that present themselves as a result of the volatility in the market. With that in mind, below are trends we can expect to see in 2023:

  • The ominous threat of a recession means that many companies are looking to release cash in preparation to ride out the depressed market. It is envisaged that there will be more public companies considering "take-private" opportunities (purchase of stock in a publicly traded corporation by a large private equity group or consortium). This may protect from stock market volatility and offer attractive premium returns to shareholders.

  • Rising interest rates mean that the cost of debt is increasing which will have a knock-on effect to number of transactions progressing. To moderate this, it is anticipated that we will see a change in the types of debt products (or no debt being used at all) and deal structures used by private equity investors to mitigate risk where there are lower returns (i.e. using deferred/earn-out or contingent consideration, and more investor instruments ranking ahead of management, for example).

  • We expect to see increased interest from American investors in UK businesses who wish to take advantage of sterling's trading slump against the dollar - this will likely be of particular relevance in relation to UK businesses with a strong cash flow.

  • "ESG" (environmental, social, governance) refers to a set of standards measuring a business's impact on society, the environment and how transparent and accountable it is. There has been a focus on ESG in recent years and this is expected to continue, with investors believing that a strong ESG policy will equate to fruitful returns long term (for example, due to the increased regulation and 'green' focus in UK and beyond).We expect ESG to continue to play an important role in informing investments by PE funds in the year ahead.

  • We would expect healthcare, technology and financial services to continue to remain predominantly active sectors in terms of PE investment – in addition, renewable energy and hydrogen technology companies are expected to remain attractive propositions for PE investors in the year ahead. We are also seeing increased investment into healthy and sustainable food and drink products, from UK investors and beyond.

  • As a result of the economic climate there have been reduced opportunities in the "exit market" in 2022 (i.e. the secondary market where investors dispose of their interests in a business) as more funds delay their exits, not wishing to sell on unfavourable terms. We expect we may see a continuation of longer holding periods, with reduced pressures to sell which have in part been made possible by the strong returns that funds generated in 2021.

    In summary, whilst 2023 is set to continue to be a difficult environment, success is likely to be found by those who can adapt and evolve their strategies to take advantage of the opportunities arising from the current flux in the market.

    Brodies are acknowledged experts in transacting private equity deals and in providing private equity focused legal and deal management services. We act for private equity and venture capital houses, sovereign funds, family offices, management teams, and for buyers, sellers, and owners of businesses who may have involvement with private equity investors in the course of M&A, development capital, and capital release activity. We also advise private equity managers on the fundraising of associated deal finance and on the structuring, establishment, marketing, and ongoing day to day operation of private equity funds. Our deep knowledge of the private equity industry and the associated structures involved allows us to provide first rate legal and commercial input.

    Should you need any advice in respect of your business, please get in contact with your usual Brodies contact or one of the contacts listed below who will be happy to assist.


    Paul Breen

    Senior Associate

    Rebekah Caunt

    Trainee Solicitor