Second-tier assets need a 'little bit of sobriety' on valuations to trade, added DeAngelo's fellow global co-head of corporate finance, Jay Novak.
Houlihan Lokey's global co-head of corporate finance Larry DeAngelo has told PE Hub that 2026 could be the year that dealmaking re-accelerates, pointing to factors like record levels of deals aged six years and above and "excellent" debt availability.
DeAngelo and fellow co-head Jay Novak shared their views on the dealmaking outlook with PE Hub at the investment bank's inaugural London edition of its new ONE Houlihan Lokey Global Conference format. The conversation also covered areas like exit tactics, the UK's PISCES initiative, investing in artificial intelligence and what Europe needs to do to become more attractive for investors.
Was 2025 the year that dealmaking really started to pick up globally?
Larry DeAngelo: We were starting to think the second half might be the time when it re-accelerates, but it's been relatively slow. It feels like that's going to be 2026 now. We have a strong backlog. That will eventually make its way through the system.
What will drive that?
LD: If you look at the deals that are six years or older, it's at record highs - 30 percent of the overall holdings. When you've got a deal that's six years or older, there is pressure to sell that. You can delay, but fundraising is down for the first time in 10 years, because LPs want their money back before making new commitments.
Debt availability is excellent. In fact, the spreads have gotten tighter. Sofr has gone from 50 basis points in late 2021 to 400 basis points, but the spread is probably down 75 basis points to 100 basis points. That's really good for the markets.
What about the second- and third-tier assets that have been stuck in portfolios for a while? Is the valuation gap starting to narrow there?
Jay Novak: There have to be some businesses that transact in those values to prove that that's the market. You'll see a lot more activity there because some of them have been around for a while and should trade, but they have to get a little bit of sobriety from a valuation standpoint.
LD: In a slow market, there's less price discovery. When the market starts to pick up, there's more prints, which creates much more confidence. Then you're going to see the volume. That's exactly what happened in '21.
JN: Nobody wants to be the fool. Once they start to see some more of these deals being done, there's going to be a bunch of people pushing in.
Are GPs still leaning into alternative exit options?
LD: Through the first six months of this year, CVs were 20 percent of the overall M&A market. That number is too high for LPs' comfort because they want to be totally aligned. You're not maximising your last nickel if they're doing a continuation vehicle.
What about partial sales?
LD: It's a great option, especially as private equity deals have gotten larger. There is much better price discovery than there used to be - with much more competition in those processes.
What do you think of initiatives like the UK's PISCES (Private Intermittent Securities and Capital Exchange System) to boost liquidity in private companies?
LD: The problem is that usually for these businesses, the amount of discovery to do a real deal is a lot more than you're going to find in a system like that. The businesses need to be actively marketed. You need to tell that story. The investors need to see the CEO. They need to have a full data room. These are all the things that private investors are used to seeing if you truly want the top price.
Which sectors are performing well and which are struggling? Or is it a more nuanced picture?
LD: In the consumer bucket, there's some things that are on fire and other things that are awful. If you manufacture in China or Southeast Asia, you've struggled. Investors don't want to get near those assets with a 10-foot pole because of all the risk associated with tariffs.
On the other hand, there's a bunch of protein companies and hydration companies at the conference. There's always these trends where consumers are choosing new products. Same for healthcare - there's a bunch of trends in longevity. These things that are newer and on trend are doing great.
Beauty gross margins are almost like software. And if you get a trend and you're on TikTok or whatever, it goes through the roof.
It's the haves and the have-nots. We're seeing a number of transactions that are all-time highs - setting new benchmarks. So when people say the market's crappy, it's not everywhere.
What about the money flowing into AI? Should we be worried about a bubble?
LD: We need all the infrastructure. That money's going to be good. The issue will be, how many model companies we have, how many chip companies we have. It's going to come down to price per token. DeepSeek, you ignore that at your own peril because the model's 95 percent as good and one-tenth the price.
You're running the ONE conference format in London for the first time. You're obviously positive on European dealmaking, but how can the region boost growth further?
LD: There are some reforms that Europe needs to do. I was talking to someone who manufactures equipment for restaurants, and he's in the Netherlands. I asked, how is it going in Germany? He said in some ways it's easy. Other ways it's a nightmare. He has to change his distribution approach, ie the way he goes to market. In the States, if you're in Florida and you're selling in Texas, there isn't any change in process. The more Europe can figure that out, that's when you start to see more gains, because it's just easier to grow your business.