The past year was a challenging one, with a significant slowdown in capital markets activity reflecting broader economic uncertainties, market volatility, and geopolitical instability. However, with inflation and interest rates stabilizing toward the end of 2023, there are reasons for cautious optimism going into 2024.

It's a complex picture overall, with businesses facing headwinds or opportunities unique to their particular industries. PNC Business Credit Chief Executive Officer Peter Mardaga notes that it’s important to remember solid financial relationships, such as those that PNC Business Credit is able to provide, can help companies not only weather the current storm, but also remain strong when economic conditions are more favorable. “We are an ‘all-weather lender’ that actively lends through all economic cycles, and we will continue to look for opportunities to finance the growth and transformation of companies,” Mardaga said.

Senior Secured Finance

Interest rates are the primary theme, particularly as many companies will be facing the need to refinance and restructure existing debt facilities in 2024. Given the uncertainty surrounding interest rates, many companies are likely to continue to focus on reserving liquidity rather than making large capital investments. If historical patterns continue, well-capitalized business with good management teams will continue to secure the best financing terms and more than likely emerge stronger from this economic cycle.

Optimism for Mergers & Acquisitions

The mergers and acquisitions (M&A) and refinancing markets softened in 2023. Many prospective transactions were put on hold, as businesses waited for the economy to rebound or the Federal Reserve to signal the end of rising interest rates. However, many companies will face the need to act in 2024, whether through refinancing and restructuring existing debt facilities or moving forward with an acquisition, even with uncertainty surrounding interest rates. Private equity sponsors are likely to adapt to higher-for-longer interest rates and to continue utilizing creative financing solutions to complete deals.

Any transactions that are completed will more than likely take place in non-cyclical, resilient sectors such as technology, healthcare, industrials, and business services. There is significant M&A opportunity in 2024, but creativity will be key to get transactions over the finish line.

Renewed Technology Investments

Many software companies are facing the compounding effects of elevated interest rates, slowing sales cycles, and less software spend expansion by existing customers. This has prevented companies from growing at the pace they desire and investing in their businesses, and, perhaps most importantly, it has constrained liquidity. More so, many founders of software firms have been less apt to sell in the lower valuation environment, and lender and private equity sponsor diligence bars have become much higher, leading to fewer actionable opportunities. 

Even so, there are still some bright spots for the technology industry. In 2024, artificial intelligence (AI) is anticipated to be a big force in driving software expenditure. Organizations are expected to increasingly invest in products that enable them to harness the capabilities of AI and also experiment with its potential use cases. This trend, along with accelerating adoption of Software as a Service (SaaS) tools, the challenges associated with cloud migration, evolving compliance requirements, and the magnitude of data facing businesses, will benefit software spending patterns.

Channel Finance

Another bright spot is specifically related to the normalization of technology companies’ supply chains. While many businesses may have increased technology spending during the COVID-19 pandemic, spending in this category normalized in 2023. Now that those devices from 2020 are aging, and supply chains have normalized, there is an expectation of renewed demand for upgraded laptops and other devices as businesses look to refresh their technology, given that this is an exercise most businesses complete every three to five years.

Volatility for Equipment Manufacturers and Service Providers

Some equipment manufacturers and service providers performed very well in 2023, especially those serving the construction and golf industries. Others, including some businesses in the transportation industry, faced significant challenges. There is an increase of equipment available for sale resulting from the closure of at least one major trucking firm, which will keep equipment prices depressed in 2024, and impact sales of new transportation equipment.

Ready to Help

PNC Business Credit is a leading provider of senior secured financing for mid-sized companies, large corporations, and private equity firms throughout the U.S., Canada, and the UK. For more than 25 years, we’ve been a trusted advisor for our clients, delivering creative financial solutions to help them grow and transform to meet their strategic business goals. Our lending capabilities span a variety of industries and look to support businesses as they maximize their access to capital for acquisitions, refinancings, recapitalizations and turnarounds. Learn more here.