The KfW determined business climate The private equity market's indicator fell by 19.5 points to -32.0 points. The assessment of the current situation has deteriorated significantly, and business expectations also deteriorated. The indicator for the current business situation fell by 26.8 points to -43.0 points, and the indicator for business expectations fell by 12.3 points to -21.1 points.
Disappointing economic data is responsible for the subdued mood among private equity investors. With the recurring uncertainty among (potential) portfolio companies, the assessment of deal flow is also deteriorating. The recent interest rate increases are also contributing to the setback by worsening the availability and terms of the debt capital typically used for transactions.
However, expectations for new engagements for the rest of the year are quite positive. One reason for this development could be, according to the KfW It could be that an end to the central banks' interest rate hikes is slowly coming into sight. While this doesn't change the actual interest rate level, the negative sentiment is less related to the level than to the speed of the interest rate turnaround.
Ulrike Hinrichs, Managing Board Member of the Federal Association of German Private Equity and Venture Capital Companies, says:
"The overall economic environment has once again stifled the fragile recovery in sentiment seen in the previous two quarters. Uncertainties regarding the economic development of both portfolio and potential target companies are likely to have intensified, putting a relentless damper on sentiment. Only when economic concerns and interest rate hikes no longer weigh on investors will market sentiment improve substantially. This is when assessments of deal flow and transaction financing will also brighten again. However, challenging times certainly offer attractive entry opportunities or add-on opportunities for existing portfolios on the investment side. The persistently positive assessments of entry valuations underscore this."
