Top private equity trends in 2025:
- Improving valuations present a more favorable backdrop for new deals, and crucially exits, in the months ahead
- Traditional exit channels are springing back to life and visibility on valuations becomes clearer
- Alternative sources of liquidity from secondaries and NAV providers will remain important options for GPs, even as conventional exit volumes rise
- Improving exit fundamentals could have a huge impact on fundraising markets, as an uptick in distributions enables LPs to increase deployment into new funds
As private equity managers go into 2025, they will be hoping that after two years of declining buyout deal activity and flat fundraising, a long-awaited market recovery will finally manifest.
Hopes that a rebound would swoop across private equity markets in 2024 never quite materialized, but as private equity stakeholders start a New Year, there is a quiet optimism that 2025 will be breakout year for deal activity.
For deep dives into key trends driving the 2025 private equity outlook, read on.
Private equity trend #1: Valuation visibility
Improvement and stability in asset valuations will help to kickstart deal flow in the year ahead. Uncertainty around asset valuations was one of the main reasons for falling buyout and exit deal activity, resulting in a widening delta between vendor and buyer pricing expectations through the cycle of high inflation and rising interest rates.
It has taken time for valuations to respond to the first interest rate cuts registered in 2024, but there are finally signals emerging that private equity firms see asset prices moving higher.
Green shoots have emerged in the growth and venture capital space – one of the first private equity segments to experience the fallout from tightening liquidity, risk aversion and higher capital costs.
In November stalwart venture capital firm Sequoia, for example, a bellwether for the Silicon Valley investment community, marked up the value of its 2020 vintage fund by just under 25 percent. Even though the fund has yet to land any exits, the revised valuation represents a significant pivot in outlook from a market-leading franchise.
In addition to portfolio mark-ups, start-up companies have also encountered a more favorable backdrop for funding rounds. Smart ring start-up Oura, for example, achieved a $5.2 billion valuation in its latest Series D funding round, more than double the valuation secured in a 2022 Series C round, while Moneybox, the digital savings and investment app, almost doubled its valuation in its October 2024 Series D round.
The positive sentiment in the venture and growth equity space has bubbled up to the buyout market. The Argos Index, which tracks the average multiples of private, mid-market European M&A deals valued in the €15m to €500m range, for example, saw average multiples in Q3 2024 rally to 9.5x EBITDA after three years of continuous decline.
Private equity trend #2: Private equity exit channels creak open
A more stable backdrop for valuations has supported an improving outlook for exits, and is momentum is sustained this can unlock a wave of exits in 2025.
According to White & Case Debt Explorer figures, global exit deal value in Q3 2024 was up for the third quarter in a row, with combined exit value of US$94.06 billion representing the highest quarterly exit value in a year. Global exit volume numbers are also looking in encouraging, with the 429 exits posted in Q3 2024 representing the most active quarter for exits since Q3 2022.
GPs are not popping the champagne corks just yet, but there is a sense that asset class can build on this momentum and that the worst of the exit drought may be over.
A GP survey conducted by EY and published in Q3 2024 showed that more than half of GPs (53 percent) expect exits to increase in 2025 – up from 34 percent at the start of the year.
Private equity trend #3: Alternative liquidity
Even as traditional exit pipelines are unblocked, alternative liquidity options will remain a valuable source of liquidity – and distributions – as the private equity market transitions back to a steadier exit pace.
The slowdown in exit activity during the last 24 months has seen GPs explore alternative routes to liquidity in order to expedite distributions to LPs, and even as the exit backdrop improves, these alternative exit routes have proven their viability and will remain a key part of the exit mix.
Continuation funds, for example, where GPs shift selected assets into a separate vehicle, giving incumbent investors the option to either roll their interests into the new structure or take cash, have evolved into an established way for GPs to make distributions without selling prized assets. According to figures from Jefferies, continuation funds accounted for 14 percent of sponsor-backed exit volume in H1 2024 – a record high and a vindication of the continuation fund as a credible route to exit.
Similarly, NAV financing will continue to push further into the mainstream, providing liquidity for sponsors to fund portfolio companies beyond fund investment periods and in some cases make distributions. The increasing use and acceptance of NAV finance has seen the market more than double in size since 2023 according to 17Capital. Growing familiarity and comfort with the product among the GP community will drive ongoing uptake of NAV facilities through 2025.
Private equity trend #4: Unlocking fundraising in the private equity space
Upping distributions to LPs – through both traditional and alternative channels – will be crucial to reigniting a fundraising market that has been stagnant at best.
Pitchbook figures analyzed by EY estimate that 40 percent of the companies held by private equity companies have been sitting in portfolios for more the four years.
With significant pools of LP capital locked up in these assets, it is imperative that managers start to clear the backlog and get the fundraising wheels moving again.
Exits and distributions will have to reach a certain threshold to reignite LP interest in making new allocations, but even though there is still a way to go, there are flickers of light at the end of the tunnel, with LPs starting to talk about potential spinouts and first-time funds for the first time in years.
After a period of prolonged dislocation 2025 is a year for the private equity ecosystem to move back into balance.
