Key Trends in Private Equity and M&A for 2025

Market Rebound and Cautious Optimism

A consistent theme across recent analyses is the rebound in PE dealmaking and M&A activity throughout 2024, a trend expected to continue, albeit with a degree of caution, into 2025. McKinsey’s Global Private Markets Report 2025 highlights that global PE dealmaking rose by 14 percent to $2 trillion in 2024, marking a significant recovery after two years of decline. Similarly, Bain & Company’s 2025 Global Private Equity Report notes that deal investment and exit values increased in 2024 as interest rates and inflation began to stabilize. Deloitte’s 2025 M&A Trends Survey echoes this sentiment, anticipating that macroeconomic tailwinds will likely prompt increased M&A activity. EY also projects a rise in PE deal volumes, although they might remain slightly below pre-pandemic averages, indicating a measured recovery rather than an unbridled surge. This optimism is tempered by the understanding that the cost of capital, while declining, remains higher than the decade-long average, and geopolitical uncertainties continue to cast a shadow.

Liquidity, Fundraising, and Diversifying Capital Sources

Liquidity and fundraising remain pivotal concerns for the industry. A significant development noted by McKinsey is that sponsors’ distributions to Limited Partners (LPs) exceeded capital contributions in 2024 for the first time since 2015. However, Bain points out that distributions as a portion of net asset value sank to their lowest rate in over a decade, contributing to ongoing LP liquidity challenges and making fundraising difficult. In response, General Partners (GPs) are increasingly innovative. McKinsey observes GPs unlocking alternative capital sources such as separately managed accounts (SMAs), co-investments, and partnerships, alongside tapping into non-institutional investors like high-net-worth individuals (HNWIs). EY’s 2025 PE trends emphasize the growing influence of Sovereign Wealth Funds (SWFs), which are expected to significantly increase their US investments, often through cornerstone investments, co-investments, or direct deals. Deloitte also highlights the increasing retail client exposure to private capital investing, suggesting AUM growth will accelerate as private capital becomes more accessible. The expansion of private credit is another crucial trend, with EY noting that private credit funds have amassed $1.5 trillion in AUM, a figure projected to nearly double in the next five years, filling financing gaps left by traditional lenders.

Emphasis on Value Creation, Technology, and Operational Excellence

The focus on robust value creation strategies within portfolio companies has intensified. Artificial Intelligence (AI) and advanced data analytics are at the forefront of this shift. EY’s research indicates a more focused use of AI in 2025, moving beyond exploration to actual implementation in origination, due diligence (potentially cutting processing costs by up to 70%), and enhancing productivity and growth during the investment period. McKinsey also underscores the importance of building best-in-class data science teams and scaling AI partnerships. Growth, as a theme, is central, with firms concentrating on revenue enhancement through advanced analytics, strategic offshoring/onshoring of non-core functions, and robust reporting frameworks, as detailed by EY. Change management is also gaining prominence, with PE firms needing to manage larger, more diverse investments and foster a culture of collaboration and growth within portfolio companies.

Sector Focus and Emerging Themes

Specific sectors are attracting significant PE interest. Investment in infrastructure, particularly in energy and digital infrastructure like data centers, is a key trend highlighted by EY, with PE firms having invested over $100 billion in data center projects in the last three years. Technology, in general, remains a hotbed for M&A and PE activity. While not as universally highlighted in the 2025 outlooks, healthcare has previously been a strong area of interest. Furthermore, Environmental, Social, and Governance (ESG) considerations are becoming increasingly integral. Deloitte’s Private Equity Index emphasizes the need for PE-backed businesses to balance performance across profit, people, and planet, a sentiment driven by evolving regulations like the Corporate Sustainability Reporting Directive (CSRD) and increasing investor and societal expectations. This signals a move towards a wider definition of value in strategies and operating models.

The Exit Environment and Future Challenges

The exit environment is showing signs of revival, with McKinsey noting an uptick in exit activity, especially sponsor-to-sponsor exits and public-to-private (P2P) transactions. Bain also observed an increase in P2P deals globally. However, a significant exit backlog of sponsor-owned companies persists, representing a challenge in realizing returns. The IPO market, while showing some life, remains tentative. Refinancing portfolio companies in a higher-rate environment and navigating ongoing geopolitical uncertainties and the rapid evolution of AI are other critical challenges the industry must address. The ability to adapt, innovate, and demonstrate tangible value creation will be paramount for success in the dynamic PE and M&A landscape of 2025 and beyond.