Cascadia通讯|平衡乐观与谨慎：2024年秋季的主要市场趋势

FALL2024 From the CEO they were behind the curve in cutting them. At last month’sFOMC meeting, their hand was forced. They cut interest ratesby 50 basis points—their first reduction in four years—toreinvigorate the economy and prevent the unemployment ratefrom rising further. Back in April, I wrote to you about our positive outlook on themacroeconomic backdrop for American businesses in ourSpring 2024 newsletter. Despite pockets of uncertainty andchoppiness, we were beginning to see green shoots. As we movethrough the final quarter of 2024, we continue to see signs of themarket turning as we look into 2025. What’s on deck forthe rest of 2024: Since March, we have seen the M&A and financing marketsopening back up at an increasingly accelerated pace, albeitfrom a low base. Those green shoots have become youngplants. Public investment bank Q2 earnings reports have shownmeaningful year-over-year and Q1-to-Q2 improvements, withfinancial firms reporting their capital and M&A businesses arerevitalizing. We have experienced a record pipeline as bothfamily and founder-owned businesses and private equity(PE) portfolio companies prepare to go to market, drivenby anticipation of additional Federal Reserve rate cuts andthe belief that 2025 will bring increased deal activity, moreattractive valuations, and broader buyer interest. M&A and financing markets continue toopen back up at a rapid pace with a recordpipeline of companies ready to go tomarket in 2025. The Federal Reserve’s hand was forced—they need to continue cutting interest ratesto reinvigorate the economy. Despite some macroeconomic strain andconsumer stress, we think the probabilityof a national recession is low and we arein the early innings of a three-to-four-yearM&A upcycle. At the same time, the economy is under some strain.Consumers are feeling stressed, with consumer price inflationup 20.8% between February 2020 and July 2024,and highhousing costs persisting. Nervousness following a series ofweak data reports—including jobless claims reaching thehighest levels in a year and manufacturing activity contracting—resulted in market selloffs around the globe in early August.The Fed’s lateness is a big part of the issue. In 2021, they werebehind the curve raising rates to forestall inflation, and then Capital light and efficient companies,including the business services sector, willcontinue to generate significant interestfrom buyers and investors. The early innings of an extended upcycle looking for reasons to say no. In the deals we are doing now,they are neutral or slightlyinclinedto say yes. This is leadingto a shortening of deal cycles. Typically, the M&A processtakes between eight and 12 months. We are seeing it comedown to around 10.5 months and expect it will gradually moveback to eight months. Interestingly, we are not seeing thegeopolitical backdrop, including the U.S. presidentialelection, significantly influencing sentiment. That said,certainty following the election will surely boost buyer andseller sentiment alike, contributing improved conditions for amore positive M&A cycle. While the economy is facing some challenges, affecting globalmarkets, we believe the likelihood of a national recessionremains low.As we discussed in April, we expect certainmarket segments to experience strain. For example, consumercompanies selling non-essential products and services tomiddle and lower-end consumers will be stretched. We are alsoseeing organic growth slowing in the technology sector. Ourview is that tech companies will need to make acquisitions inorder to drive growth. The upside is this will pave the way for arobust acquisition environment with thousands of companieslooking to go to market . We believe only a subset of well-performing companies will drive strong interest and valuations,but increased activity and broader strategic and private equitybuyer interest will result in a more attractive seller environmentin 2025. The cost of capital may be a little bithigher, but leverage is highly available.Rates came down slightly ahead of theFed cut, partly because the competitivemarket means more favorable termscan be negotiated. As long as the Fed proceeds with further rate cutting, we thinkmomentum is strong enough that we could enter a goldilocksperiod of the economy neither booming nor busting, butgrowing at a consistent rate. We expect this will be the startof a three-to-four-year M&A and financing upcycle, whichwe started calling for back in Q4 2022 based on the typicaldownturn duration of 18 to 24 months. Unlike the pandemic-induced downturn of 2020, we do not think this cycle will haverapid swings but be a slower, steadier ramp. The availability of leverage and improving cost of capitalare boosting the overall mood of the market. The boom ofprivate credits funds we wrote about last spring has shownno signs of letting up. They continue to dominate with moremoney currently going into private credit than into PE. Inturn, we are seeing