PitchBook News - A turning point for PE & VC?

As we make our way through the back half of 2024, all eyes are on the Fed.

Private market dealmaking and returns have slowly been creeping up after an uninspiring 2022 and 2023. Public markets have been optimistic, a recent spike in early August notwithstanding.

Inflation is gradually declining toward the Fed's 2% target, and the labor market, while recently showing signs of strain, has remained resilient.

Meanwhile, the lending environment has improved in anticipation of potential rate reductions, enhancing capital supply for private investments and M&A activity.

In real estate, valuations may be bottoming out as the multiyear headwind of higher rates starts to abate. In real assets, the rise of AI has spurred a surge in digital infrastructure investments.

And should the IPO market continue to open, we could see a resurgence in exits for the much-maligned VC industry, which has over 700 unicorns sitting in private portfolios.

All told, the climate for US private markets may be at its most favorable state since the Federal Reserve began its rate-hiking cycle in early 2022.

However, uncertainties persist in the economic outlook. The July jobs report has reignited concerns about a potential hard landing, and recent weeks have experienced increased volatility, prompting a flight to safety.

 

GPs are still holding out for a better exit climate.

Payments companies have retained the heavyweight belt in the fintech value-creation division, after a deep dive into which areas of enterprise fintech generate the best returns for early-stage investors.

Our latest fintech M&A report looks at three new value-creation ratios for companies across the US and Canada:

1. acquisition price over employee count for backed + non-backed fintechs

2. total exit amount in dollars over VCs' early-stage invested capital

3. aggregate post-money valuation (but not yet exited) over VCs' early-stage invested capital

The acquisition-price-to-employee-count ratio—a proxy for revenue and profitability—revealed strength in the payments space, which logged the highest valuation ratio at 1.61x, followed by financial services infrastructure's 1.40x, and capital markets' 1.34x.

 

Payments stood out in our fintech value-creation analysis.