Private investment firm Turning Rock Partners has released its latest market update, revealing a surge in optimism for the U.S. private capital markets as the nation looks ahead to 2025. The report highlights a rebound in mergers and acquisitions (M&A), easing credit markets and favorable policy trends following the recent U.S. elections.
Key Insights:
1. Dovish Federal Reserve Policy Spurs M&A Activity
In the lead-up to the U.S. elections, the Federal Reserve began signaling a dovish monetary policy, with forward markets pricing in approximately 195 basis points of rate cuts over the next 18 months. This shift has already catalyzed a revival in M&A, with H2/24 activity accounting for 87% of all 2023 transaction volume.
Small and mid-cap companies remain the focal point of this activity, comprising over 90% of deal volume. With reduced interest rates and a business-friendly environment, Turning Rock expects continued momentum in this space.
2. Sponsor-Backed Credit Markets Adjust
The sponsor-backed credit market has seen significant evolution, with spreads compressing sharply in recent months. While 83% of loans in the second half of 2023 were priced at spreads of S+600 or higher, only 22% of loans reached this level by Q3/24. This trend reflects improving conditions for borrowers and growing investor appetite for credit exposure.
3. Banks Returning to Lending
The Federal Reserve’s Loan Officer Survey indicates a positive shift in lending standards, with only 8% of banks reporting tightening standards in Q3/24, compared to 50% a year earlier. Turning Rock views the return of banks to the credit market as an opportunity rather than a threat.
4. Optimism in Middle Market Growth
With a new administration in place, U.S. corporations are preparing for potential deregulation in key industries such as banking, energy and transportation. Over half of middle-market CEOs now anticipate economic improvement in the coming months, fueled by lower interest rates and increased consumer confidence.
“The intersection of favorable macroeconomic conditions and targeted investment strategies creates a compelling landscape for growth,” Maggie Arvedlund, CEO, Turning Rock, said.
