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In this episode of the NextWave Private Equity podcast, Pete Witte explores the current PE landscape where firms enter 2025 with strong expectations and growing confidence amid favorable market conditions.
Private equity enters 2025 with strong expectations amid favorable market conditions. In 2024, PE firms announced US$565 billion in deals, a 25% increase in value and 20% in volume from the previous year, according to Dealogic. Confidence is high, with 73% of GPs expecting increased deployment activity. Factors driving this optimism include narrowing valuation gaps, increased asset availability, and improved macro visibility. Exit activity is also expected to rise, driven by secondary buyouts. Additionally, GPs anticipate a surge in IPOs and a continued focus on AI and private markets buildout.
Key takeaways:
PE firms enter 2025 with US$1.4t in dry powder; 73% of GPs expect increased deployment activity in the next six months
Supply chain issues ranked as a top concern, with 70% of GPs working with portfolio companies to assess these issues in light of proposed tariffs
GPs predict a rise in IPOs, with companies in strong market positions well-placed to go public.
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Announcer
The global PE Pulse podcast from EY.
Pete Witte
Hi everyone and welcome to the first EY PE Pulse podcast of 2025.
My name is Pete Witte and I'm the Global Insights Lead for private equity, EY, and over the next 7 or 8 minutes or so we'll talk through some of the major themes that we're seeing in the private equity market including trends and our outlook for the deals environment, the past quarter's themes and areas of focus and then we'll close with our outlook for the next few months.
Thanks everybody for joining. And let's get started with deals.
Announcer
This quarter's deals environment, acquisitions, exits and financing.
Witte
Now when we look at the deal environment, what's interesting about right now is that there's really few parallels with where we were this time last year, in so far as we came into the year with really strong expectations for deployment activity, the markets had stabilised a little bit, the credit markets were starting to open up and now we're entering 2025, feeling sort of the same way, albeit amplified. The environment for deal making is really strong. The public equities markets have been really strong. Interest rates are falling, spreads have come down and the credit markets lenders are out there competing for deals.
There's strong CLO formation and even some of that geopolitical uncertainty that we had coming into the year where something like, you know, three quarters of the world went to the polls last year that's getting resolved as well. Not everywhere of course but in several of PE’s biggest markets most notably in the US.
And so sentiment is high and over the next few months we're going to see to what degree that translates into deals getting announced. I think there's a lot of reasons to believe that we'll see significant continued momentum in the first part of this year.
Now in terms of where we landed last year, we closed out the year with global PE acquisition activity up 25% by value from 2023. And the number of deals increased by about 20%. Activity built over the course of the year.
In the first half of the year, we saw shops deploy about 250 billion, by the second half that had grown to more than 310 billion. So we're coming into the year with some really solid momentum. Now, once a quarter, we do a survey of GPs, right now about 75% say that activity will increase over the next 6 months. Clearly exits, were one of the big stories last year and we did see some building momentum there as well. We closed out the year with exits up about 20% from the prior year and secondary buyers in particular were a really big part of that.
Now the challenge, of course, is that that's nowhere near enough to support the acquisitions that have been made over the last few years. According to PitchBook, PE firms hold just under $4 trillion in assets right now, and 40% of those have been held in excess of four years.
And so we saw, of course, a lot of manoeuvring to try to get money back to LPs through things like continuation funds and NAV lending in order to fund distributions, that sort of thing.
Now what's interesting here is that last year when we ran our survey, only about 1/3 of GPs said that they expected exits to increase. Right now, almost 60% expect exits to increase. So again, I think we see confidence starting to build here on the exit side as well. And I think that tracks with what we're hearing anecdotally from our clients, where we're seeing a more consistent refrain that more processes are going to start to spool up over the next few months.
So we'll see how that plays out. So that's a view of activity and next we'll talk about some of the major market themes.
Announcer
This quarters key market themes and fund priorities.
Witte
Now, one of the reasons, especially in the US, that folks are so bullish on the new year is that we've now got the election behind us. I think there was a measure of concern that uncertainty could drag on for weeks or even months that could really kill the M&A markets. Obviously, that wasn't how things played out.
We did see a measure of slow down in the weeks immediately before the election and that dragged on activity in Q4 a bit and for that reason Q3 was actually the busiest of the year. But now we see a lot of discussion around the potential for reduced antitrust activity, which could be a tailwind not only for some of these really large transformational M&A deals that have been sitting on the sidelines, but also for some of the smaller add-on activity that's been occurring.
And then, of course, tariffs and the potential that they have to catalyse in acceleration in the rebalancing of global trade. Right now we see folks doing a few things here to prepare. The big one is really around supply chain. 70% of the GPs that we talked to say they're working with their portfolio companies to really understand the potential impacts on the supply chains. Some of the other things that they're doing include evaluating the manufacturing footprint, they're thinking about add-ons in jurisdictions that might have less exposure or otherwise be more favourable. And in some cases they're taking a more programmatic approach where they're setting up, for example, a centralised team to try to take a really holistic approach in working with portfolio companies across a lot of these issues.
Now, with all of that in mind, let's talk about our outlook for the next 6 to 12 months.
Announcer
Outlook for the next 6 to 12 months.
Witte
So 3/4 of GPs think deployment activity will increase another 60% or so say exits will increase. There's all this enthusiasm, but what specifically does that really look like.
Well, when we look at deal activity GPs say there's a few things that are going to contribute to that increase. First and foremost, it's a continued narrowing of the valuation gap. No surprise there. That's been a significant impediment since the downturn started a couple of years ago and it's been steadily working towards an equilibrium. But what's interesting is that the number two answer in terms of what's going to lead to an increase in deal activity is an increase quantum of assets coming to market from PE.
So we could see a lot of secondary activity as firms start to pull the trigger on some of these assets that have been locked in their portfolio and this should be a steady source of deal flow for firms as the year progresses.
Now that's in sharp contrast to corporates, an increase in assets coming out of corporates ranked dead last among drivers for more deals. Now I'm personally a little more bullish than that. Corporates remain under a lot of pressure to focus on their core competencies. They're well aware that private equity can be an effective solution to that. So I wouldn't discount that as a source of deal flow.
Now, more broadly, survey respondents called out three things that they expect to be different about private equity. The first is AI, both as a value driver in a portfolio and a driver of efficiency at the GP. Across the industry there's this clear shift in mindset that we're seeing from, you know, pursuing these really flashy solutions to focus on results driven outcomes that can deliver real, tangible value. Firms are propagating use cases across a portfolio as they start to get more programmatic in their approach. Vendor management, customer support, HR, for example, these are all areas where early deployers are realising benefits that span you know, margin expansion, top line growth, talent retention and so on. And at the GP, it's about one, streamlining a lot of the Ops functions.
And then two, increasing speed to insight to help guide investment decision making and that's going to become increasingly important as deployment accelerates. GPs expect traditional managers to get more engaged with alts.
We're still in the early innings of this consolidation wave and traditional managers have been major players in acquiring private capital firms in order to defend their margins and complement their existing business lines.
Lastly, the number one thing that GPs expect next is an increase in IPOs. We've had a lot of false starts, but there's a lot of good candidates in the pipeline when the window really opens in earnest. A lot of these companies that have been building really strong competitive positions in their respective markets are going to be well placed to go public.
That's it for this quarter. Thanks as always for listening. Be sure to check out our accompanying PE Pulse report and we'll back in a few months to see how some of these predictions are tracking.
Announcer
The global PE Pulse podcast from EY back next quarter. For more on the latest market trends, go to ey.com/pepulse.
End of podcast.
