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Private Equity Pulse

Private Equity Pulse: key takeaways from Q4 2024

Photographic portrait of Pete Witte
Pete Witte

EY Global Private Equity Lead Analyst

7 minute read 28 Jan 2025
Related topics
Private equity
IPO

Private equity enters 2025 with strong expectations amid increasingly favorable conditions.

In brief

  • 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’ top expectation for this year is an increase in IPOs, with companies in strong market positions well placed to go public.

Confidence continues to build in the private equity (PE) space, amid a market backdrop that grows increasingly amenable to a wide variety of transactions. 

Overall, PE firms closed 2024 with US$565b in announced deals according to Dealogic, up 25% by value and up 20% by volume from the year prior. Momentum built as the year progressed – the first half of the year saw firms deploy US$254b, an amount that grew by 23% in the back half. Strength was evident across all regions, with the number of deals up 24% in the Americas, 22% across Europe, and 11% in Asia-Pacific.


Firms begin 2025 with strong expectations. In our latest survey of PE general partners (GPs), nearly three-quarters expect deployment activity to increase over the next six months. With more than US$1.4t in dry powder at their disposal (much of it aging), they’ll have more than enough capital to fund those ambitions.


GPs cite a number of factors behind their expectations for an increase in deal activity. First and foremost, sponsors expect a continued narrowing of the valuation gap. Mismatched expectations between buyers and sellers have been a stubbornly persistent impediment since the downturn began; however, recent quarters have seen valuations reach a steady state, allowing more deals to proceed with confidence – overall, according to Dealogic marketwide M&A valuations averaged 9.1 times EBITDA in 2024, down from more than 11 times in 2022.

Firms also expect an increased volume of assets brought to market from PE in the coming year. According to Pitchbook, PE firms hold just under US$4t in assets, 40% of which have been held in excess of four years. Other anticipated tailwinds include increased macro visibility and the declining cost of capital through a combination of reduced interest rates and narrowed spreads.


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Exit tailwinds build, driven by secondary buyouts

Indeed, PE firms have already been active buyers of sponsor-backed assets. Last year saw global exit activity rise 23% by value and 16% by volume across all channels – but it was secondary volume in particular that drove activity. Overall, PE firms acquired 79 companies from other PE firms, with an aggregate value of US$167b – up from just US$73b the year prior.
 

GPs expect a more active environment for liquidity as we head into the new year: 57% of those surveyed expect exits to increase over the next six months, up from just 34% of GPs surveyed a year ago. For many of these companies, exit readiness activities – inclusive of presale diligence, engaging bankers to help manage the sale, and preparing management teams for the process – has already begun in earnest. In our survey, 53% of GPs report starting such initiatives six to 12 months ahead of the exit transaction, and another 27% report starting more than a year before the sale.


With many elections in the rearview, focus shifts to policy

Firms were forced to manage through large measures of political uncertainty throughout 2024 as voters in more than 60 countries, including the US, the UK, France, South Korea, and Mexico, went to the polls. With many elections now in the rearview, attention turns to understanding the specifics of potential policy changes and the implications of geopolitical shifts. In the US, for example, the incoming administration’s deregulation agenda – and in particular, its approach to antitrust scrutiny – has the potential to accelerate transaction activity across multiple sectors. Large transformational deals that might have sidelined by concerns around regulatory pushback could be revisited, and buy-and-build strategies, a recent target of regulatory scrutiny, could see renewed momentum.

The potential for new tariff regimes in particular introduces new vectors of uncertainty, and firms are working to understand both the risks and the opportunities. Firms are helping portfolio companies (portcos) to assess their exposure across a number of areas, including manufacturing footprints and tax exposure. In some cases, sponsors are considering transactions in jurisdictions likely to receive more favorable treatment. In our survey, supply chain issues ranked as the top concern – 70% of GPs said they were working with portcos to assess supply chain issues in light of proposed tariffs.


How EY can help

An increase in IPOs is GPs’ No. 1 prediction for 2025

GPs expect a number of dynamics to help define the asset class as the new year unfolds.
 

Firms to lean in on AI

Chief among expectations is a continued increase in the role of AI, both as a value driver in the portfolio and as a driver of efficiency within the GP. Across the space, a clear shift in mindset is emerging, from pursuing flashy solutions to focusing on results-driven outcomes that deliver tangible value. Firms are propagating use cases across the portfolio as they start to get more programmatic in their approach – vendor management, customer support, and HR, for example, are all areas where early deployers are realizing benefits spanning margin expansion, top-line growth and talent retention.
 

At the GP, firms are focused on 1) streamlining many operations functions, and 2) increasing speed-to-insight to guide investment decision-making, an increasingly important tool in dealmakers’ arsenal as deployment accelerates.


Traditional asset managers to continue with private market buildout

GPs also expect traditional managers to continue to build their private markets capabilities. The industry remains in the early stages of a consolidation wave, with traditional managers increasingly active in building their alternatives capabilities organically, as well as acquiring private capital firms to defend their margins and complement their existing business lines.

Firms’ No. 1 expectation – an increase in IPOs

Finally, GPs’ top expectation for this year is an increase in IPOs. While overall IPO issuance has been muted, PE interest in the channel remains strong. Last year, according to Dealogic, sponsored IPOs (including both PE and venture capital) made up nearly half of total IPOs by volume; and out of 20 mega-IPOs last year (those larger than US$1b in proceeds), 12 were PE-backed. In aggregate, they raised US$27b, a dramatic increase from the two listed the year prior that raised US$2.7b.

With a number of high-profile candidates in the pipeline, firms will be watching closely for a widening of the window. Companies with strong competitive positions in their respective markets will be well placed to go public.

Regional PE Pulses

Read the latest regional pulses

Summary

Private equity enters 2025 with strong expectations amid favorable market conditions. In 2024, PE firms announced US$565b in deals, a 25% increase in value and 20% in volume from the previous year. 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.

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    About this article

    Photographic portrait of Pete Witte
    Pete Witte
    EY Global Private Equity Lead Analyst
    Helping clients and stakeholders understand the trajectory and impact of vital trends. Developing thought leadership and insightful content. Aspiring platform tennis pro.
    Related topics
    Private equity
    IPO

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