2025 Outlook

Global M&A Trends in Private Capital

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  • Insight
  • 10 minute read
  • January 28, 2025

A buoyant M&A outlook for private capital in 2025 is marked by growing sector convergence and stringent focus on value creation.

Eric Janson

Eric Janson

Global Private Equity, Real Assets and Sovereign Funds Leader, PwC United States

For 2025, we are expecting the pickup in global M&A activity for private capital which began last year to continue and accelerate, fueled by recent declines in the cost of capital and two industry-specific factors: the growing availability of funds that private capital is looking to deploy and the substantial backlog of portfolio companies seeking an exit. An anticipated emphasis on deregulation and tax cuts from the new US administration could also boost dealmaking in the year ahead.

With valuations remaining high on the back of buoyant capital markets, especially in the US, and interest rate declines slowing, one of the big themes for the year will be the renewed focus on value creation. Funds are becoming more disciplined in looking at operational transformations with enough upside to justify hefty valuations. Opportunities increasingly beckon at a time in which many large companies are focusing on their core businesses and are looking to optimise their portfolios, at times carving out sizable business units to divest in the process.

A second emerging theme is sector convergence in M&A transactions. We are increasingly seeing investments by private capital players into companies and projects that cut across industries. One example is the new nexus between infrastructure, energy and technology, which is being fueled by the AI transformation; technology companies are looking to tap into new sources of energy to power the servers in data centres they need to run huge AI data models. Another example is tie-ups between consumer health companies and fintech firms to better harness health data.

We expect that these types of industry-converging transactions will continue to be prevalent in 2025. We also expect continued consolidation in the private capital industry itself, as the largest players look to bulk up across all asset classes, both equity and debt. Increasingly, as the largest funds get larger, midsize funds are having a harder time raising new investment unless they have particular niches.

‘While there may be some choppiness, the general trajectory for private capital in M&A is upward. One important theme I see emerging is the growing convergence of traditional industries as global trends continue to play out, including the need for energy to fuel AI.’

Eric Janson,Global Private Equity, Real Assets and Sovereign Funds Leader, PwC US

The private capital M&A upturn is gaining momentum

The upturn in private capital M&A has been underway for several months, marking the end of a two-year period of flatlining. Starting in the second quarter of 2024, private equity (PE) deal values began growing again, although the progress hasn’t been linear, with some softness returning later in the year. This initial uptick puts the industry on a trajectory for stronger upward thrust and renewed momentum in 2025, though some nervousness about interest rates remains in the market.

Accompanying this growth in dealmaking is an increasingly positive backdrop for equity issuance, with initial public offering (IPO) volumes continuing to normalise and a strong outlook for 2025. With more than 1,200 unicorns (privately held companies with a valuation greater than $1bn) in the private market and a backlog of PE exits, the pipeline of companies looks promising for 2025. The US IPO market continued its gradual comeback in 2024—raising 50% more proceeds than in 2023 and nearly four times more than in 2022. Although IPO trends varied by region, the market remains an important exit route for PEs as they search for ways to return capital to limited partners (LPs).

The build-up of ‘dry powder’—one of the two driving forces of current and future M&A growth for industry—has been striking. According to Preqin estimates, available funds for private capital firms globally (excluding venture capital) exceeded $1.6tn in 2024 for the first time, with approximately $1tn of that in the US alone. The amount of global PE dry powder in December 2024 was 43% higher than at the end of 2019, before the pandemic. As noted in our 2024 midyear M&A outlook, along with its traditional institutional investors, private capital has been increasingly tapping into private retail investors and insurance companies as large sources of capital.

29,400

The global inventory of private equity portfolio companies as of December 2024, up 4% from a year earlier.

Source: PitchBook

In addition to the growing number of portfolio companies looking for an exit, no less striking is the 29,400 private equity portfolio companies existing at the end of 2024; 46% of which have been on the books since 2020. As such, an upturn in M&A activity is not only welcome for the industry but also necessary as LPs pile on pressure for returns. That pressure has, in turn, led to a surge in the number of so-called continuation funds, which have enabled private capital firms to return capital to LPs through internal transactions despite the softer market, as we note in the spotlight below.

Global M&A volumes and values in 2024

After sizable growth in dealmaking in 2020 and 2021 at the height of the pandemic, the volume of private equity M&A deals and their value dropped sharply in the second half of 2022 and stayed flat for the next two years, depressed by rising interest rates, restraints on capital availability, and other macroeconomic factors. But the upturn that started in the second quarter of 2024 has been gathering momentum; according to PitchBook data, global PE deal value rose by 23% in 2024 to $1.7tn from $1.4tn in 2023, and the number of deals also rose to just over 19,000 from around 17,000 the prior year. Both the value and volume are still lower than the peak years of 2021 and 2022 but are substantially higher than pre-pandemic levels.

Corporate carve-outs and the convergence of technology, energy and infrastructure deals are fueling the new momentum

Several trends stand out in this new surge of activity. First, as part of a major emphasis on value creation, we are seeing the growth of carve-out transactions as diversified companies review their portfolios—at times under investor pressure—and shed assets not considered core to their strategies. Several global companies have recently announced their intention to divest major portfolios. They include Unilever, which is already looking to divest its ice cream business and which has reported wanting to divest a further $1bn in food company assets, and Comcast, which announced in November 2024 its intent to spin off its NBCUniversal cable television networks along with complementary digital assets. Private equity firms are leading candidates to acquire these types of business units.

Second, tech-related transactions continue to attract attention. Some of these are a continuation of the software deals that have been a major driver of M&A more generally in recent months, including Thoma Bravo’s $1.5bn acquisition of Everbridge, a critical-event management software company, and the agreement in October 2024 by GIC and Silver Lake to acquire Zuora for $1.7bn. But other forms of technology are also attracting M&A interest, including climate technology and healthcare technology.

Third, converging industry deals have been picking up pace, especially those relating to technology and energy infrastructure, to power the AI boom. Data centers have been a hot commodity among dealmakers, to the point where they may risk becoming overvalued, but they are just part of the core energy supply infrastructure in the developed world that needs to be financed. A prominent transaction in the energy and infrastructure space involving private capital players was the announcement of a partnership by BlackRock, Global Infrastructure Partners (recently acquired by BlackRock), Microsoft, and a leading AI investor from the Middle East that seeks to invest in data centres and supporting power infrastructure with up to $100bn in potential capital for new and expanded facilities to feed the voracious appetite for computing power. The partnership will initially seek to raise $30bn of private equity capital over time from investors, asset owners, and corporates. Corporates are also investing heavily in this space, as highlighted by the $500bn ‘Stargate’ joint venture announced by OpenAI, SoftBank and Oracle in January 2025 that aims to build a network of data centres across the US.

Finally, we are seeing some significant geographic variations in private equity, including some regional markets that look especially promising. One such example is Japan, where the weakening yen is making Japanese companies more attractive to foreign buyers. With a shrinking domestic market, we also note a growing appetite among Japanese companies and investors for cross-border deals. The large pool of cash reserves held by Japanese corporations has also sparked increased shareholder activism pushing for value creation, which has led to several Japanese assets being divested, attracting PE interest both domestically and from overseas. According to White & Case’s M&A explorer, the value of private equity deals in Japan rose sharply in 2023 to about $50bn—or about 5% of global private equity deal value—from less than 2% in 2022. In 2024, deal values fell back but still represented about 3% of the global PE total. In India, too, a rapidly growing economy, a large consumer base, increasing digital adoption, a thriving start-up ecosystem and favourable government policies are creating fertile ground for dealmakers—although, similar to Japan, the private equity deal value has dropped sharply since the 2022 peak.

Proactive management of portfolio companies to create value

Private capital firms are adjusting their internal organisation to underscore their renewed emphasis on value creation. The major players have been setting up operating departments that focus on raising earnings in portfolio companies by taking out costs or accelerating revenue growth. These operational transformations aim to improve efficiency and productivity and free up greater liquidity down the road.

This more proactive management marks another sign of pressure from investors for internal rates of return that meet their expectations in a period when firms are holding on to assets for longer than in the past. Some of the asset classes now in favor, including energy and infrastructure, have inherently long life cycles.

Growing industry consolidation amid the continued rise of private credit and sovereign capital

The more difficult funding context of the past three years, in a climate of rising interest rates, has accelerated consolidation of the private capital industry: in the first half of 2024, more than half of the total capital raised across private equity funds globally came from only 12 new mega-funds, with a value of more than $5bn, according to PitchBook data. The largest funds to close included Vista Equity Partners’ $20bn-plus eighth flagship fund in April 2024 and Silver Lake’s $20.5bn seventh namesake vehicle in May 2024. For smaller and midsize players to survive in this environment, they must have niche specialisation.

Other factors are also driving the consolidation. One is the ambition of the larger funds to cover the full range of asset classes, including private credit, which has emerged as a major source of deal funding and corporate refinancing, particularly for smaller and midsize companies. Total private credit assets under management now total almost $1.7tn globally, more than three times the 2015 total.

Private credit has proved highly competitive with more traditional bank financing. Examples of the consolidation include TPG’s $2.7bn acquisition of Angelo Gordon, an alternative investment firm focused on credit and real estate investing, in November 2023, and Brookfield’s $1.5bn strategic investment in Castlelake, an alternative asset manager specialising in asset-based private credit, in September 2024. Asset manager BlackRock has also made several recent moves to scale up its private credit operations, including its December 2024 proposed acquisition of HPS Investment Partners—a firm that specialises in both private and public credit—for approximately $12bn.

Amid this industry consolidation, one significant type of fund—sovereign capital—is shifting behaviour. Sovereign wealth funds no longer act mainly as LPs in private equity funds, as they used to, but have increasingly evolved to invest more directly. Now, some are creating their own investment teams to invest in parallel to the major funds. And they, too, are moving into private debt alongside their more traditional interest in private equity.

For example, in May 2024, the United Arab Emirates’ Mubadala announced a $4.2bn investment alongside Global Infrastructure Partners in a major Australian fertiliser venture. In the same month, Saudi Arabia’s Public Investment Fund (PIF) announced a strategic agreement with Lenovo to accelerate Lenovo’s ongoing transformation, further enhance its global presence and increase the geographic diversification of its global manufacturing footprint. In private credit, the Korea Investment Corporation announced its intention to strengthen its presence in direct lending with a particular focus on Asia, and the Abu Dhabi Investment Authority seeded the private credit platform of AGL Credit Management, an asset manager specialising in corporate credit, and committed $1bn to its first private credit fund.

These funds have substantial pools of capital: PIF, for example, has $925bn in assets under management and is looking to more than double that by 2030. Almost none of the sovereign funds mentioned here are smaller than $300bn. One advantage sovereign funds have over traditional private capital firms is that they aren’t subject to the same timeline expectations from investors and can therefore make longer-term investment plays.

Spotlight: Continuation funds

Assets in private equity funds usually have an expected life cycle culminating in an exit. But in some cases in which values have not matched expectations or exits are slower than anticipated, general partners (GPs) can flip those assets into ‘continuation funds.’ These essentially extend the holding period of portfolio companies for the sponsor but, at the same time, offer the opportunity for LPs to cash out if they so choose, without a sale to a competitor.

Continuation funds came into vogue after the 2008 global financial crisis as investors waited for values to recover. And in the complex high-interest-rate environment of the past two years, with a growing backlog of portfolio companies seeking exits, the interest in these funds has exploded: by mid-2024, continuation funds held more than $50bn in assets under management.

 

Continuation funds now feature as important aspects of the secondary market for private equity and have become a well-established exit route for sponsors, alongside other secondary market transactions. These include sales by investing LPs of their interest in a fund to third-party buyers or sales of individual assets in a fund by the GPs themselves. While these LP-led and GP-led transactions can be attractive to new investors, they may take place at a discount to the value of the assets in today’s market. Rolling the assets into continuation funds is a way to avoid taking a haircut. As well as offering liquidity options to current investors, continuation funds give the opportunity to new investors to access assets that have a known track record.

Continuation funds’ very nature means that investors and sponsors need to be scrupulous about valuations, potential conflicts of interest and regulatory scrutiny. But their rise is testimony to the ingenuity of the market in finding exit paths in times of market blockages.

M&A outlook for private capital in 2025

The combination of buy-side and sell-side pressures in a more favourable macroeconomic climate will fuel dealmaking for private capital players in the months ahead. The expected growth will not be linear, and some choppiness could linger in the deals market because of factors ranging from geopolitics to domestic political agendas as well as uncertainty about the pace of interest rates cuts. Moreover, the geographic picture could vary from territory to territory; already there is considerable divergence in deal activity between parts of Asia, Europe, and the US. Yet the upturn has already arrived, and we expect it to continue and grow through 2025, with a particular focus on industry convergence. Above all, at a time of high valuations, private capital players remain eagle-eyed for the additional value they can create from high-quality assets.

  • Our commentary on private capital trends is based on data from industry-recognised sources and our own independent research. All dollar amounts are in US dollars. Unicorns are defined as privately held companies with a valuation greater than $1bn.
  • The number of global private equity portfolio companies and the value and volumes of private equity deals is based on data from the 2024 Annual Global PE First Look report by PitchBook, accessed on 13 January 2025.
  • The number of unicorns is based on The Complete List of Unicorn Companies by CB Insights, dated 6 December 2024, accessed on 6 January 2025.
  • US IPO proceeds between 2022-2024 is based on PwC’s Global IPO Watch 2024 report published on 2 December 2024 with data from S&P Capital IQ Market Intelligence LLC, as of 30 November 2024.
  • The amount of capital (‘dry powder’) raised by global and US private equity funds is based on information from the Future of Alternatives 2029 report by Preqin dated 17 September 2024, as accessed on 13 January 2025.
  • Japan private equity deal volumes and values between 2022-2024 is based on information from MergerMarket and Dealogic as contained within the White & Case M&A Explorer, accessed on 20 January 2025.
  • Assets under management held by continuation funds between 2019-2024 is based on  preliminary year-end data from Preqin, with additional analysis performed by PwC’s AWM and ESG Research Centre in Luxembourg, referred to as the PwC AWM and ESG Research Centre (Luxembourg).

Eric Janson is PwC’s global private equity, real assets and sovereign funds leader. He is a partner with PwC US. Mairi McInnes is a director with PwC UK. Andrea Micci is a senior manager with PwC US.

The authors would like to thank the following colleagues for their contributions: David Brown, Kevin Desai, Hugh Lloyd Ellis, Steve Roberts and Richard Rollinshaw.

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