Private equity US market insights and trends

A Fed pivot to monetary easing drove deal activity higher for the first time in three years. The year 2024 marked a pivotal turnaround for private equity, spurred by the Federal Reserve’s shift toward monetary easing and improved financing conditions. Deal activity improved, with values climbing 26% and volume increasing 24% compared with 2023. Momentum grew as inflation moderated to 2.4% by September. As interest rates stabilized, risk appetite increased and the average debt/EBITDA ratio rose to 5.2, from 4.9 in 2023, and interest coverage ratios slightly declined to 2.3. The lending environment coupled with a strengthening private credit market created favorable conditions for dealmaking, with private credit origination more than doubling. Technology dominated the deal landscape, capturing 29% of total volume as it is being recognized for its potential value creation and strategic importance.

The exit environment improved but remained uneven. Exit values rose 9% and volume increased 23% year-over-year, leading to the longest average holding period in a decade at 5.3 years, resulting in a strong focus on value creation to achieve a desired internal rate of return. The IPO market showed signs of revival, with eight PE-backed IPOs generating $12 billion, compared with six IPOs raising $3 billion in 2023. Private equity returns demonstrated resilience but trailed public markets, which rose by 24%. Strategic M&A among PE firms nearly doubled year-over-year, reflecting a trend toward consolidation.

Looking ahead to 2025, the outlook is optimistic. Key growth drivers include anticipation of a business-friendly environment, improving pricing and funding conditions, and a resurgent IPO market. The EY Q4 2024 PE Pulse survey shows 75% of respondents expect increased deal and IPO activity, and 57% expect higher exit volumes. 

The survey shows that 70% private equity firms are adapting strategies to focus on supply chain resilience in preparation for global trade shifts. Increasing macro confidence and the potential for further interest rate cuts suggest a favorable environment for PE activity in 2025. The industry appears poised for robust dealmaking, exits and potentially stronger fundraising. In 2025, PE deal activity should continue to accelerate if inflation remains stable, financing conditions improve, and valuations align to expectations. Additionally, reduced antitrust scrutiny could drive large M&A deals and boost add-on activity.

Deals accelerated for the first time since 2021 by 24% as the Fed pivoted to lowering rates¹

Building exit backlog anticipated to decline as buyer-seller gap narrows in 2025

PE environment is anticipated to remain positive in 2025**