PSG’s Dany Rammal expects Q4 dealmaking pickup to accelerate in 2024

‘While 2023 was a year of idea generation for Generative AI-type solutions, in 2024 we will start to see specific B2B use cases applied and monetised, leveraging Generative AI technology. That will be transformative,’ says Rammal.

Dany Rammal, PSG
Dany Rammal, PSG

A rise in dealmaking in the fourth quarter of 2023 will likely accelerate into 2024, Dany Rammal, managing director and head of Europe at software-focused growth investor PSG told PE Hub Europe in the latest instalment of our outlook series with senior dealmakers.

Of the five platform investments PSG made in Europe in 2023, three came during the fourth quarter, highlighting how dealmaking was opening up, said Rammal. PSG’s fourth quarter activity included a €40 million investment in decarbonisation tech company One Click LCA alongside InfraVia Capital Partners, a stake in treasury and risk management software company Diapason and an additional growth investment in gym management software provider Sports Alliance.

Generative AI will be one of PSG’s focuses next year.

“While 2023 was a year of idea generation for Generative AI-type solutions, in 2024 we will start to see specific B2B use cases applied and monetised, leveraging Generative AI technology,” said Rammal. “That will be transformative.”

Do you expect a pickup in dealmaking in 2024 compared to next year? What’s making you optimistic about dealmaking next year and what are you worrying about?

Towards the end of 2023, we saw a pickup of investment activity as market valuation corrections and macro factors, such as the cost of debt and geopolitical risks, were broadly priced in and had somewhat stabilised. This enabled more buyers and sellers to find mutually agreed valuations that reflect the new environment. As a result, we started to see founders and sellers bringing high-quality assets to market, either to look for funding to accelerate growth and/or to pursue strategic M&A. We expect this trend will accelerate in 2024.

How was your dealmaking experience in 2023? What were the high and low points, in terms of deals/exits signed and in terms of wider conditions?

We had an active year despite the wider drop in investment activity. In 2023, we committed investment to five new platforms and 12 add-on acquisitions for our portfolio in Europe, with three of the five new platform investments made in Q4. This reflects the strong ramp-up of market activity towards the end of the year. We also realised an exit with the sale of Nomentia, a leading European treasury and cash management software provider, to Inflexion, in Q1. Great assets continued to attract strong interest and valuations even during the low points of 2023.

Which sectors and/or sub-sectors do you expect to do well in 2024 and why? Which do you expect to struggle? Will that be similar to what you saw in 2023 or different?

We continue to see great growth and value in backing software companies across Europe and the US. The automation and digitisation of most sectors of the economy and business processes continues at pace. We expect this to accelerate in 2024 with the roll-out of enhanced Generative AI-based functionalities and solutions.

There are significant growth opportunities for technology and software companies that generate, control and own substantial amounts of data. Those companies – regardless of the end market – will stand to benefit most from the Generative AI opportunity.

While 2023 was a year of idea generation for Generative AI-type solutions, in 2024 we will start to see specific B2B use cases applied and monetised, leveraging Generative AI technology. That will be transformative.

Do you expect to see a continued focus on profitability vs growth next year?

The recalibration in tech market valuations has seen a healthy shift back to profitability – in addition to growth – as a key valuation driver; we expect this to continue in the year ahead. Growing and profitable companies will continue to attract substantial interest compared to growth-only, high cash-burning businesses.

What’s your outlook for exits in 2024? Do you expect a pickup in IPOs or will it be mainly financial and strategic sales next year?

In 2024, we expect a strong increase in exit activity across the private equity industry. In Europe, private equity will continue to be a primary exit route for growing and profitable software companies – and private equity backed consolidators will continue to provide a main exit route for assets. The IPO window has always been volatile, and it is hard to tell whether next year will be any different from 2023.

Editor’s notePE Hub Europe will be running 2024 outlook Q&As with senior private equity dealmakers through December. The previous instalment was with Paul Morrissey, senior managing director and head of Blackstone Growth Europe.