Increasing Agreement Suggests a Bright Future for Private Equity Deal-Making in 2025
The private equity landscape is gearing up for a busy year in 2025, with several factors contributing to an anticipated surge in dealmaking.
According to a recent article by Tom Whelan, Partner at Reed Smith in London, the US capital markets are set to benefit significantly from listings due to higher pricing and deeper liquidity. This trend is likely to attract more private equity firms, particularly those seeking to capitalise on growth opportunities.
In the fund finance market, 2025 could be even busier than 2024, as lenders actively compete to provide General Partners (GPs) with bridging facilities, NAV lines, and co-investment debt facilities. The secondary private equity market and GP-led market are also expected to grow, along with the acquisition of stakes in GPs.
The economic conditions are expected to play a crucial role in this surge. A stable or improving economic environment can boost investor confidence, leading to more deals. Moreover, the general downward trend in interest rates has resulted in a lower cost of leverage and increasing debt availability, making it easier for private equity firms to secure financing.
Technological advancements are another key factor. Private equity funds are investing heavily in tech businesses, AI, cybersecurity, professional services, healthcare, education, B2B, industrial businesses, energy transition, and renewable plays. Favourable regulatory changes can also create opportunities for private equity deals by reducing barriers to entry or investment.
The expectation is that 2025 will be a vintage year for PE investment and financing. The increased visibility on legal and regulatory approach for the next 4 to 5 years, due to a record number of parliamentary elections globally, is expected to lead to increased certainty, which in turn boosts investor confidence and willingness to invest.
The article also highlights the growing trend of continuation funds, which allow investors to sell assets or portfolios, as a way to exit their investments. This trend is expected to continue into 2025.
However, fundraising will continue to be tough for many mid-market players and new funds being raised by new fund managers. Auction sales are taking longer to get to signing/closing compared to 2022 and the first half of 2023.
The optimism for investment is further boosted by the increased use of the word "peace" in connection with the Ukraine war and Middle East conflict. The expectation is that this will lead to a more stable global environment, encouraging more investment.
Moreover, the anticipated boost to the American economy due to Donald Trump's presidency is expected to stimulate more investment. There is also a trend of more big fund managers acquiring other fund managers, leading to more fund consolidation.
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In conclusion, the private equity market is poised for a busy and prosperous 2025, with several factors contributing to an anticipated surge in dealmaking. The trend of increased investment in technology, a more stable global environment, and the growing use of continuation funds are likely to drive this growth. However, fundraising challenges remain for many mid-market players and new funds.
Investors may capitalize on the growth opportunities presented by private equity firms, given the anticipated surge in dealmaking throughout 2025. This surge is likely to be driven by factors such as strategic investments in technology, reduced barriers to entry or investment due to favorable regulatory changes, and the continued growth of the continuation funds trend. However, mid-market players and new funds may encounter challenges in the fundraising process.
