The key sentiment is overwhelming optimism for the year ahead. The majority of firms intend to invest more than in 2024 as cheaper debt and falling valuations boost deal numbers.
PE firms need insight on how their peers are reacting to current challenges and trends. This survey reveals their views on issues like inflation, debt, and advancements in technology.
200 respondents
Investment directors, managers, and originators
UK, USA, EMEA, and APAC
Mean investment size of respondents’ firms – £70+ million
Interviews were conducted between 27 November and 23 December 2024.
PE firms need insight on how their peers are reacting to current challenges and trends. This survey reveals their views on issues like inflation, debt, and advancements in technology.
While leaders are positive about 2025, some of the takeaways are surprising:
Investment trends look consistent across the market, but deals are probably more frequent in facilities management and financial services. In the UK, the recruitment sector is still slow, but we expect the wider people and talent space, encompassing training, up-skilling, and consulting, to have strong levels of activity as employers seek solutions to develop and retain key staff.
This report is also a strong resource for benchmarking your own performance: if you’re not one of the 72% of PE firms using AI to drive decision making, should you be? And how does your exit strategy compare to others?
As geopolitical tensions continue and there’s ongoing speculation about US trade policies, it’s no surprise that stability, the economic climate, and the availability of finance make the top five worries list for all regions.
Deal sourcing was also a top five concern, particularly among US respondents, as fewer companies are going to market in a tough economy.
Availability of finance isn’t a top five concern for UK firms. As of October 2024, UK-based PE firms have approximately £178 billion in dry powder they plan to deploy over the next three to five years, according to the British Private Equity and Venture Capital Association (BVCA).
Instead, finding and retaining talent topped the list. This is caused by a growing number of investors spinning out from PE firms to start their own funds.
A greater availability of debt financing will boost dealmaking in 2025. While many central banks initially increased rates to address inflation, there’s been a general shift towards rate reductions or pauses in the last year. In turn, this has unlocked debt financing.
For example, the Bank of England’s August 2024 rate cut brought more lenders to the table, resulting in increased competition and better pricing and terms for borrowers.
Squaring vendor-buyer expectations is a constant M&A frustration, and our respondents welcomed a decline in valuations.
Though the cost of debt is falling, PE is unable to offer the high multiples enjoyed in times of low interest rates. Meanwhile, public market corrections and challenging trading conditions have reset vendor expectations.
Two-thirds of respondents from all regions expect to boost investment levels in 2025, with the majority planning to increase spending by up to 25%.
UK PE firms were less optimistic, with a 50:50 split between net increase/decrease. This makes it an outlier compared to other countries. For example, 80% of EMEA (not including the UK) respondents said they would increase investments.
Some 75% of global companies are struggling to find skilled talent, according to the 2025 Manpower Group Global Talent Shortage Report.
The reasons include a skills void as an ageing population retires, knowledge gaps in new technology, and post-COVID-19 work expectations upending recruitment patterns.
This explains why HR and recruitment firms are high on investor shopping lists both globally and in the UK.
Employment-light sectors dominated the top five for all regions as PE limits its exposure to labour cost inflation.
Our global and UK respondents also said they would target financial services firms in 2025. The sector has strong fundamentals, including predictable cash flows, the potential for digital transformation, and consolidation opportunities.
Organic growth is the top post-transaction priority for PE firms. The top three focus areas are implementing growth strategies, enhancing product offerings, and maximising operational efficiencies. Expansion through mergers and acquisitions was the fourth most popular answer.
Surprisingly, there was little acknowledgement of the need to strengthen management teams. This could suggest that enhanced due diligence is filtering out assets with poor leadership.
As expected, strategic sales to trade buyers remain the most popular exit strategy, followed by recapitalisation and secondary buyouts.
However, a surprising proportion (27%) of PE firms (all regions) said that their preferred exit strategy was IPO.
This fell to 10% for UK respondents, which is high given the paucity of 2024 London listings. There are several initiatives underway to lure companies to the UK public markets. These include a revision of the FCA’s listing rules to make it easier for companies to operate under public scrutiny.
of PE firms agree that digital transformation has significantly improved the performance of portfolio companies.
of PE firms use AI and machine learning in their investment analysis and decision making.
Digital transformation to streamline processes and drive efficiency is a well-trodden path to realising asset value.
However, in the last two years, PE firms have had to decipher what rapidly evolving artificial intelligence means for their portfolio as well as their own operations.
Due diligence must now consider both the threat and opportunity of new technology and how these are governed.
Meanwhile, respondents said they’re using AI to guide decision making. A new generation of PE-focused software enables them to identify market trends and carry out deep analysis from multiple sources, such as financial data, market research, and customer insights.
The last twenty years saw the emergence of private equity funds dedicated to aligning financial returns with social and environmental impacts.
The view from the industry (68% of respondents) is that the widespread adoption of ESG principles means that there’s no longer a need for specialists.
Seventy three percent said that ESG is integral to their investment strategy, with regulatory compliance the most common motivator.
That’s not to say ESG efforts are simply a hygiene factor; ethical considerations were the second most popular motivator, and value creation also made the top five.
PE also realises the importance of ESG to their stakeholders, with 38.5% of firms updating them quarterly and 34% updating them on a half-yearly basis.
Our first Private Equity Pulse reveals a sector that keeps calm and doubles down in challenging conditions – 72% of respondents said their firm increases investments in volatile markets.
This optimism looks well-founded. The re-alignment of vendors’ price expectations more closely matching the valuations PE are able to fund coupled with the availability of finance and strong sector performance means we expect a rise in the number of attractive assets coming to market.
