Movements in the public stock market often influence when private companies choose to sell and when investors decide to acquire. The connection is driven primarily by shifting valuations and changing windows of opportunity.
Public and Private Valuations Move at Different Speeds
Public company valuations adjust quickly. Private valuations adjust more slowly, partly because they rely on long-term forecasts and infrequent price resets. During sharp public market swings, this gap widens, and merger activity often slows until valuations realign. Historical data shows that private equity deal volume tends to decline in periods when public valuations fall suddenly, then recover as markets stabilize.
Rising Markets Encourage More Company Sales
When stock prices rise for an extended period, private company owners often choose to sell. A review of private equity exit cycles shows that distributions to investors have historically increased by nearly 50 percent during strong public market periods. Owners tend to take advantage of higher valuation multiples and easier financing conditions. These cycles appear consistently across expansions from the late 1990s through the late 2010s.
Market Timing Is a Real Factor
Research into fund behavior shows that sellers and buyers often time transactions around broad market conditions. In years when public market price-to-earnings ratios move higher, acquisition activity typically rises as well. Conversely, when the S&P 500 experiences prolonged declines, deal volume frequently drops. This pattern reflects both sentiment and the availability of credit.
Equity Windows Matter
Periods with strong equity issuance, strong IPO activity, and higher market multiples create conditions in which private sellers see better outcomes. Historical analysis of IPO cycles shows that issuance volume increases significantly when the market price-to-earnings ratio is above its long-term median. These periods create more attractive exit opportunities not only for public listings but for private sales as well.
As a whole, stock market cycles do not just influence investor confidence. They help determine when buyers and sellers move, how they price companies, and which transactions ultimately reach completion.