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PitchBook News - Rate cuts can't fix PE valuation issues

Plus: Sneak peeks of our Q3 PE and VC data, possible follow-ups to vetoed AI bill & more
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The Weekend Pitch
October 6, 2024
Presented by Fidelity Private SharesSM
(Jenna O'Malley/PitchBook News)
When the Federal Reserve finally announced its half-point interest rate cut, I dedicated several days to reporting on how the PE industry would react.

I'm Madeline Shi, and this is The Weekend Pitch. You can reach me at madeline.shi@pitchbook.com or on X @Madelin94615831.

I had thought the market would be buzzing with excitement at the announcement, with many assuming the long-awaited cut would break the exit gridlock.

However, a different story unfolded as I spoke to more and more people. The prevailing sentiment I drew was that valuations were unlikely to revert to their prior highs in the short term, even with reduced borrowing costs. PE fund managers remain in a bind, as selling assets at a discount could raise doubts among their LPs about the overall valuation of the portfolio, while extended hold periods could harm their fund performance metrics.
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Trivia
OpenAI has just wrapped up a $6.6 billion round of financing from the likes of Thrive Capital, Nvidia, Altimeter and others. The latest round values the company at far more than any VC-backed company at the time of their IPO, including Meta and Uber. How much did the latest round value OpenAI at?

A) $157 billion
B) $210 billion
C) $129 billion
D) $169 billion

Find your answer at the bottom of The Weekend Pitch!
 

Quote/Unquote
California Gov. Gavin Newsom
(Justin Sullivan/Getty Images)
"Given the stakes—protecting against actual threats without unnecessarily thwarting the promise of this technology to advance the public good—we must get this right. For these reasons, I cannot sign this bill."

—California Gov. Gavin Newsom, writing to state lawmakers on his decision to veto SB 1047, a controversial AI safety bill. Read more about the bill and what opponents think should come next.
 

PE dealmaking on the rise
Our Q3 2024 Global PE First Look data packs—the forerunner to our quarterly US and European PE Breakdown reports—show that global PE deal count is up 8% from last year and deal value has surged 20%, with Europe holding an edge over North America. Global PE exits have progressed steadily, with a 13% increase in value and a 3% rise in count.

Large take-privates were cut in half in Q3 as dealmakers most likely delayed those announcements until after the US election. This was countered by the realization of lower interest rates in Europe and expectations of the same in the US, which led to a boost in the leveraged buyout market.
 

VC waits for market to turn
VC exits are still stuck in neutral. With uncertainty remaining in global markets, VC-backed IPOs and M&A generated less than $40 billion in exit value during Q3. The sluggish market has weighed further on fundraising, as LPs take a cautious approach to new commitments.

Global dealmaking slowed for the third consecutive quarter, as the market looks for a balance as more rate cuts loom. Check in on how the VC industry fared with our First Look data packs for the Q3 2024 PitchBook-NVCA Venture Monitor, Q3 2024 European Venture Report and Global Venture Capital dataset.
 

Stay tuned
Keep an eye out for these insights and research reports coming out this week:
  • Q3 2024 US PE Breakdown
  • Q3 2024 PitchBook-NVCA Venture Monitor
  • Q1 2024 PitchBook Benchmarks
  • Analyst Note: Investable Strategies in Direct Primary Care
 

Trivia
Answer: A.

OpenAI's $6.6 billion round values the company at $157 billion. You can read more about OpenAI's latest funding and how it stacks up to other VC-backed companies here.

This edition of The Weekend Pitch was written by Madeline Shi and Jacob Robbins. It was edited by Heather West and Clarinda Simpson.

Were you forwarded The Weekend Pitch? Sign up at pitchbook.com/subscribe.
 
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