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In this episode of the NextWave Private Equity podcast, Pete Witte, EY Global Private Equity Lead Analyst, explores the current private equity landscape.
In the first half of 2025, private equity exits reached their highest levels in three years. Corporate acquirers became active buyers, and firms showed increased flexibility on valuations to facilitate the sale of long-held assets. Despite ongoing market volatility, global M&A activity rose by 30%, with private equity contributing significantly. Although fundraising challenges exist, many investors remain optimistic and expect increased deployment activity in the coming months. Firms are prioritizing exit readiness and operational enhancements across various sectors, reflecting a proactive approach in a dynamic private equity landscape.
Key takeaways:
Private equity activity remained active in the first half of the year, with liquidity events reaching their highest levels in the last three years.
Corporate acquirers became active buyers of private equity assets, with sponsors showing flexibility on valuations to help clear long-held portfolio companies.
Firms announced 215 significant exit transactions in the first half of the year worth an aggregate US$308b – the most since the first half of 2022.
You can also listen to this podcast on Apple and Spotify.
Announcer
‘The Global PE Pulse Podcast from EY’.
Welcome to the midyear edition of the EY PE Pulse podcast.
Pete Witte
My name is Pete Witte, and I'm the Global Insights Lead for PE here at EY; and over the next few minutes, we'll talk through some key things that we’re seeing right now in the private equity space. That includes today’s deal environment, the past quarter’s themes and areas of focus, as well as our outlook for the next few months.
Thanks so much, as always, for joining, and let’s get right into it!
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‘This quarter's deals environment – acquisitions, exits and financing’.
Witte
If I had to pick a theme for this quarter, I guess I'd say resilience – resilience to a surprising degree. Obviously when we kicked off the second quarter of this year, we were entering a period of some of the most significant geopolitical and macro disruption that we had seen in a long time. And while we’ve certainly seen evidence of that disruption in terms of some deals getting pulled or delayed, overall, private equity activity – and in fact the M&A markets more broadly – have shown a surprising degree of durability in light of all the uncertainty that’s out there.
Overall, we've seen just over US$2 trillion in global M&A deals so far this year - that's up 30% by value versus a year ago and private equity has been an active contributor to that. So, an interesting data point, so not this last quarter but last quarter, so Q1, as part of our regular survey of private equity GP's, we went out and asked them on a scale of one to 10, what do you feel like is your firms’ tolerance risk right now relative to their typical baseline. And most said they were between a six and a seven.
I'll admit, I was a little bit sceptical – but now we have the evidence in the numbers, in so far as how a lot of private equity shops are leaning into some of the opportunities that are out there. PE firms have represented just under a third of overall M&A activity in the first half of this year. That's up from about 1/4 in the first half of last year. And the number of PE deals grew 17% in the first half of this year versus a year ago. A lot of that has been driven by large deals in particular so the value of deals grew more than 40% in the first half - and it's not just tech. We've seen deals announced across a wide range of spaces including transportation, energy, infrastructure, financial services. In fact, deals above US$10 billion have accounted for 27% of PE deployment so far this year – that’s up from about 10% last year.
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‘This quarter's key market themes and fund priorities’
Witte
Let’s talk about a couple of things that are top of mind for private equity right now. And the first is tariffs, and how folks are reacting to that. When tariffs were first announced, we saw a mass scramble to go out and understand the impact and really get your arms around what does it mean for supply chains and input costs, manufacturing footprints, your pricing structures, and so on down the line. For a lot of PEs, the bulk of that work has been done – so in our survey, 60% of investors said say they have a pretty good understanding right now of what the tariff impacts are going to be across the portfolio. 40%, so a significant minority, said they’re still working on it. So whatever camp you’re in, you’ve got company there.
What’s interesting though, is that less than a quarter said that when they think about the impact of tariffs, that their primary concern is the immediate first order impacts on their portfolio. This strong majority – 76% – say that they’re more worried, and they’re watching more closely, the second order impacts – so what’s going to happen with inflation, interest rates, the impact on consumer and business spending habits. So, there’s this process right now where everybody is out there trying to separate out the signal from the noise and just reduce some of that lack of clarity in order to be able to go out and do deals and manage businesses with more confidence.
Now the other thing that folks are focused on right now is of course exits, and despite the volatile environment firms did take advantage of the open windows that we did have in the first half of the year to seize on some of these opportunities to turn that strategic value creation into realised returns, which is really welcome news. Part of that is coming from increased demand from corporates, in the first half of the year the number of sales of strategic suppliers requirers grew by 26%, and even more significantly the value of those deals more than doubled. But at the same time, I think we're also seeing an increasing supply of assets that are coming to market driven by you know just this recognition that firms need to clear out some of these portfolios in order to make way for assets that are going to be more productive. So, one of the things that we asked folks in the survey this quarter was, if you could sell some of these long-held assets tomorrow, how much of a haircut relative to your original underwriting would you be willing to accept? Forty percent said that they would be willing to take a 5% to 10% haircut, and another 24% said they did accept an even greater discount in the 10% to 20% range. So, I think we're starting to see some increasing flexibility on the part of sellers which wasn’t necessarily extended this time last year but it's starting to unlock some more of these deals.
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‘Outlook for the next six to twelve months’
Witte
Why is that uptick in exits important? Because for most of the last few years, you know fundraising been resilient, despite the downturn in deals and exits. Globally, it's bounced in the US$6b-7b range for the last four years. This year though is probably likely going to be different. We've seen about $223 billion raised over the first six months of this year and so if those trends hold even accounting for December closes and everything else, if those trends hold will be looking at about a 20% decline. I think LP’s are just generally out of runway and a lot of this stop gap measures like NAV loans and GP LED deals just may not be as productive as they were maybe 18 months ago. And so, GP's are a lot more concerned about fund raising. When we asked dealmakers buying months ago, about their top concerns for the industry were, it was One - the ability to deploy capital pace. Two – the health of their existing portfolio. And Three - the ability to get liquidity. Today things have changed. The No.1 concern is fund raising. And because of that, folks are going to be watching the deals market very closely for evidence any sustained uptick especially with respect to exits. But because fund raising is such a lagging indicator even if this recovery continues to build, we probably shouldn't expect a meaningful uptick there until sometime next year.
That's it for this quarters podcast. Thanks as always for joining. We’ll be back next quarter with some more views.
Announcer
The Global PE Pulse Podcast from EY, back next quarter. For more on the latest market trends, go to ey.com/pepulse
