Uncertainty As The New Normal

TRENDS AND DEVELOPMENTS

2025: uncertainty as the new normal

The year 2025 started with a general sense of optimism for the private equity (PE) industry and the broader M&A market. PE investors had endured a challenging couple of years from 2023 when, following the giddy highs of the post-COVID PE investment bonanza of 2021 and 2022, soaring inflation, rising interest rates, macroeconomic uncertainty and geopolitical upheaval put an end to the free-money-era party and lead to a rapid-onset hangover. Higher cost of capital, significant gaps in valuation expectations and balance sheet pressure led to a significant pull back in M&A activity. Global buyout deal value per quarter fell by roughly 65% from the peak of USD274 billion in Q3 2021 to the nadir of USD98 billion in Q2 of 2023, according to data from Bain & Company, with exit values plummeting by a similar amount. Distributions to limited partners (LPs) started to lag, and hold periods for investments extended.