Navigating 2024’s Private Equity Landscape

It is easy for someone to be a “monday morning quarterback” and reflect on what plays one should have called during the game on the previous day, but to predict the future is a lot more difficult and perhaps even impossible. Having said that, a wise person is one who prepares for the future. By examining the recent trends and tailwinds in the market, one can prepare an investment strategy for the future. Below is a brief recap of the past year and a forecast of what to anticipate in the year to come.

Recap of H2 2023

During the second half of 2023 the IPO window was essentially closed, yet the M&A market was active. High interest rates made it challenging for companies to obtain and repay debt. During Q4, due to the war that broke out in Israel, most foreign investment came to a halt. Domestic consumption and demand were down as a result of the war as well. Companies focused on preserving capital, maintaining adequate supply and timely delivery of goods. Technology companies, whose primary focus is export, were impacted to a lesser extent, although they were shorthanded due to a high percentage of employees being called up for reserve duty. Recent terror at sea is raising concerns around shipping of raw materials to Israel and finished goods from Israel.

Forecast for 2024

Although there is no certainty that the war will be limited to the South, most political experts expect the major conflict with Hamas to be resolved during Q1 of 2024, although residual fighting is likely to continue for several months thereafter. Historically, in the years following military confrontations the Israeli economy experienced significant growth. One would expect to begin to recognize that growth already in Q4 2024 and 2025.

If the conflict eases during Q1 2024, several companies that were in discussions with potential acquirers may be able to consummate those M&A transactions in H2 2024. In addition, exponential growth is expected in industries that cater to the construction and defense industries, and other industries like software, healthcare and ag tech are likely to benefit from a more secure environment as well. If regional peace treaties, like the one with Saudi Arabia are back on track, foreign investment in Israel will significantly increase and joint ventures between Israel and Middle Eastern partners to market Israeli products abroad will come to fruition.

For the Israeli PE industry that means that certain mature portfolio companies will be ripe for lucrative exits. It also means that companies will require capital infusions to fund growth. Given that valuations dropped over the past six months from the inflated valuations the industry experienced in 2022, there will be attractive investment opportunities. Interest rates are not likely to drop drastically.

Given the above, we are cautiously optimistic that many excellent companies will require growth capital in 2024 and look forward to a peaceful, productive, active and successful year.


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