Listen to this articleAmid headwinds like elevated interest rates and high inflation, global private equity and venture capital deal value and volume in 2023 plummeted to its lowest in five years, according to S&P Global Market Intelligence.
The good news is that global private equity may be seeing the start of an uptick of activity, with “green shoots” emerging for prospects this year, according to Bain & Company’s 15th annual Global Private Equity Report, which was released earlier this week.
“Deal activity was down across the board in 2023, with Upstate NY statistics mirroring national ones,” said Noa Simons, president and CEO of Upstate Capital Association of New York, whose mission is to increase access to capital for companies and deal flow for investors. “Anecdotally, it looks like investment activity is stabilizing now, but it’s early to say that definitively.”
Simons says that stabilized interest rates give investors more confidence in the assumptions they need to make in doing deals and because of that, Upstate Capital expects private equity activity to pick up in the coming months.
“Decreasing interest rates open up access to capital,” Simons said. “When debt is less expensive, private equity returns look more attractive, and investors are more willing to take on risk.”
Per Simons, Rochester is appealing to venture investors due to the confluence of great technological innovation, a strong and deep pool of talent, and a relatively low cost of living, coupled with the scarcity of capital for early-stage investments.
“Upstate Capital’s current board chair, David Brown, started Impellent Ventures a couple of years ago in Rochester, at least in part to capitalize on these dynamics,” she said. “His fund is one of just a handful of venture firms with headquarters in Upstate NY, so there’s room to grow.”
Simons notes that for later-stage equity, buyout and debt investors, numerous well-established companies in the region have tremendous value and real growth opportunities, so when investors find alignment between their strategies and current owners’ goals, there are tremendous opportunities, too.
“Optimism” is the word Jeffrey Lewis, CPA, a partner and the team leader of the investment banking and transaction advisory services team at The Bonadio Group, believes best sums up the private equity climate currently.
“I think private equity and other strategic buyers are learning how to navigate a higher interest rate environment,” Lewis said. “And with all this capital on the sideline for private equity to deploy, they need to continue to find deals. So, most of the people that I talk to are pretty optimistic.”
Lewis sees Rochester as a place appealing to private equity for several reasons, including the depth and breadth of intellectual property that originated here out of large companies; a well-educated community of business owners; an overall resilient market; and a more affordable cost of living than other places like Silicon Valley or Miami.
“My opinion is there’s a lot of good companies in Western New York,” Lewis said. “There’s a lot of manufacturing, distribution, and service businesses. So, I think it’s a very attractive market for private equity.”
He believes Western New York is somewhat historically underserved in terms of private equity interest, but that there is capital to be deployed and deals to be had.
“Business owners know that there’s a lot of capital on the sidelines and private equity firms are trying to find markets where deals may not be quite as competitive,” Lewis said. “I think those things are going to continue to come together as people look at sort of second-tier markets that they can deploy capital as opposed to markets where there’s a lot more competition.”
Lewis thinks sellers in this market understand that as opposed to a few years ago, preparation for M&A activity is not only important but expected by investors.
“I think we’re seeing a lot more activity of what we’ve been preaching for a long time, which is before you get ready to exit, you should do some upfront planning,” said Lewis, who likens this planning to the organization, cleanup, and repairs you do to a home before listing it for sale. “I think we continue to see people getting ready for M&A deals in anticipation of interest rates coming back down.”
Gregory W. Gribben, an attorney and Rochester-based partner in the Business & Finance Department at Woods Oviatt Gilman LLP, is also feeling positive about the private equity market locally right now – partly because of the adaptability the business community in the Rochester region has shown over the past few years.
“In the in context of dealing with the changing economic issues with inflation, I think we’re resilient and the deal community here is in a good position to adapt to changing circumstances,” said Gribben, who is hopeful that when interest rates come down private equity activity will increase even more.
Gribben also points to the collaborative nature of Rochester’s talent pool, including business owners and their employees, attorneys, accountants, and investment bankers, as a plus to dealmaking.
“I’m optimistic about the opportunities here based on the industries that are in Rochester and Western and Upstate New York and the quality of people that we have,” Gribben said. “People work hard to get deals done and to bring good companies and good jobs here. Even when there’s inflation and high-interest rates, we still find a way.”
Caurie Putnam is a Rochester-area freelance writer.
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