PwC Outlook | Private Equity Dealmaking Poised for 2025 Comeback
- Editor
- Dec 30, 2024
- 2 min read
What's New: After a subdued 2024, private equity firms are positioning for a significant uptick in dealmaking activity in 2025, driven by anticipated Federal Reserve rate cuts, improved economic conditions, and substantial dry powder reserves.
Why It Matters: The expected revival in PE activity comes at a critical juncture when traditional investment strategies are yielding diminishing returns, forcing firms to pivot toward operational excellence and innovative value creation methods to justify premium multiples.
Big Picture Drivers:
Rate cuts and improved market conditions are unleashing $2.59 trillion in dry powder that has been sitting on PE sidelines, setting the stage for accelerated deal flow
Software sector remains the golden child for PE investors, with its predictable recurring revenue streams and strong cash flow profiles attracting premium valuations
Complex carve-outs and take-private deals are emerging as preferred transaction structures, as firms seek creative paths to value in a high-multiple environment
By the Numbers:
Sub-3% inflation marks a dramatic shift from recent years, forcing PE firms to justify price increases through strategic initiatives rather than macro conditions
Small-cap stocks (S&P 600) posted 4.92% earnings growth in Q4 2024, ending six consecutive quarters of decline
PE hold periods have lengthened significantly, increasing pressure on firms to generate superior returns to justify longer capital lockups
Key Trends to Watch:
GenAI integration becoming a critical differentiator in portfolio operations, particularly in call centers and software development
Commercial excellence strategies, including sophisticated pricing and go-to-market initiatives, replacing traditional financial engineering as primary value drivers
Consumer spending expected to strengthen in 2025, potentially catalyzing increased deal activity in retail and consumer segments
The Bottom Line for Investors: As public market valuations continue their upward trajectory, PE firms face mounting pressure to justify their premium fees and longer hold periods. Success in 2025 will hinge on their ability to execute sophisticated operational improvements and leverage technological innovations, particularly in pricing strategy and AI integration, to deliver returns that outpace the public markets.
Comments