In April, President Trump’s tariff agenda unleashed the latest headwind to the private equity industry’s three-year attempt to find a ‘soft landing’ amid persistent market turbulence. In 2022, Russia’s invasion of Ukraine disrupted supply chains and infused heightened geopolitical risk into the deal landscape. Months later, the Federal Reserve’s rapid rate-hiking cycle drove borrowing costs to their highest in decades, upending the economics of leveraged buyouts and Zero-Interest-Rate-Policy (ZIRP) era valuations.
The political environment of recent years added its own challenges. In the US, antitrust initiatives led by Lina Khan at the FTC and Gary Gensler at the SEC introduced regulatory uncertainty that left a chilling impact on M&A. Now, over the course of 2025, the unraveling of globalization leaves dealmakers grappling with a new world order for international trade dynamics.
All of this is to say – uncertainty has become a defining characteristic of the dealmaking landscape, bringing with it a fundamental upheaval to the underwriting calculus. A decade-long spree of low interest rates, benign inflation, and macro stability, has given way to an environment where volatility, ‘higher for longer’ interest rates, and sticky price pressures seem here to stay. As a result, the equation of modelling returns, underwriting, and pricing risk has become murkier, exhibited by distributions and deals falling to some of their lowest levels since the Global Financial Crisis (GFC) in recent years.
However, waiting for the perfect moment to deploy capital is rarely a winning strategy in private equity. Despite these challenges, high-quality companies abound and compelling secular trends offer clear avenues for attractive investments. With dry powder accumulating in investors’ coffers, capital is poised to be put to work. In the coming months and years, the advantage will belong to those who find a competitive edge in sourcing deals, driving operational value, and shaping compelling exit narratives.
After several sluggish years, private equity dealmaking finally showed signs of life late last year, reversing a two-year decline in deals and exits. The industry carried that momentum into the first quarter, but tariffs and their murky second-order economic effects reintroduced deeper scrutiny of valuations and borrower creditworthiness — particularly in sectors with significant supply chain exposures.
That said, while Q2 ultimately ended the streak of quarterly gains in exits and deal activity, the industry has exhibited remarkable resilience. On an annualized basis, H1 activity suggests private equity is on track to build on — and likely exceed — last year’s recovery. In the first half of 2025, US exits reached $308 billion, the highest half-year total since 2022, and in North America, more broadly, exit value has already achieved 97% of last year’s total.
The orientation of the asset class toward service-oriented industries has certainly helped it maintain momentum. Deals and exits in software, technology, professional services, and healthcare have held steady for companies with strong fundamentals and growth potential. Specifically, IPOs have emerged as a key rebound driver. The value of North American PE-backed offerings has already doubled from last year, reaching $102.2 billion. Unsurprisingly, private equity’s emphasis on capital efficiency has positioned it to clear the high bar for profitability, revenue thresholds, and market dominance imposed by the IPO market in a post-ZIRP world.
After two years of a severe liquidity drought, any signs of exit momentum are welcome. Yet, a closer look under the hood shows the industry is far from returning to ‘normal’ levels. For one, across the pond, the picture is less encouraging — European exit value is lingering at just half of 2024’s level.
The recovery’s concentrated nature raises bigger concerns, casting doubt on the overall health of the ecosystem and its trajectory for a broader rebound. For example, exit counts continue to decline, with Q2 posting the lowest level in the past 12 months. Concurrently, transaction sizes are on the rise. In 2024, the average deal size hit its second-highest level on record, mega deals of $1 billion or more accounted for a staggering 77% of total deal value, and large take-private transactions composed nearly half of North American deals valued at $5 billion or more.
This makes the recovery appear less robust, propped up by a key trend — firms are primarily offloading their highest-quality assets. Take Q1, for example, where the hike in exit value was largely driven by the public listing of Venture Global LNG, which debuted at a whopping $58.7 billion. These dynamics suggest that only the tip of the iceberg of ZIRP era companies have surfaced through liquidity events. The question now is what will happen to the rest and at what price buyers will engage. Arctos Research, for example, shows that exit multiples since 2023 have generally lagged carrying multiples, indicating that managers have yet to achieve their desired results and remain focused on executing their value creation strategies.
Ultimately, while exits are recovering, the industry is not generating liquidity at a scale near the level needed to match the frenzy of capital deployed in 2021 and 2022. GPs are still sitting on more than 30,000 buyout portfolio companies globally, valued at an estimated $3.6 trillion. A $308 billion half-year exit value is certainly progress. However, on this trajectory, it would take more than five years to clear the current backlog.
For LPs without exposure to the trophy assets driving liquidity events, distributions remain insufficient to recycle cash into new commitments. This not only hampers efforts to maintain vintage diversification, but leaves many above their target allocations, prompting difficult conversations with boards and investment committees over forward-looking pacing. Absent consistent value creation, these longer hold periods also start to erode returns.
Unlike deals and exits, these dynamics have placed fundraising on a decelerating trend. In 2024, global buyout funds raised 23% less capital than in 2023, and halfway through this year, this decline isn’t showing signs of material relief. While the industry narrowly avoided a sixth straight quarterly decline in fundraising in Q2, the supply of funds is still far outpacing demand — for roughly every $3 in capital sought by GPs, just $1 is available.
Further, capital continues to concentrate in large, brand-name firms, with fewer funds closing at higher average sizes. At the forefront of this trend is Thoma Bravo, which recently raised $24.3 billion for its latest flagship buyout fund. Notably, despite exit headwinds, the firm has returned $25 billion to LPs in the past two years, underscoring that distributions remain the currency of fundraising success.
More broadly, reversing this ‘flight to stability’ will likely face challenges even as conditions improve. Major firms are broadening their product lines to become full-service platforms for LPs. Take for example, that most of the largest private equity firms have built out very robust private credit offerings over the past couple of years.
Ultimately, this means that funds on the road today need a differentiated value proposition. Track record alone isn’t enough to secure new LPs. GPs must clearly define and communicate their unique edge in sourcing, value creation, portfolio construction, and exit strategies. Further, proactive communication and transparency prove essential to ensuring LPs remain committed across multiple fund cycles, which requires equipping IR teams with the data they need to streamline reporting, respond to ad-hoc requests, and provide LPs with a ‘best-in-class’ customer experience.
Private equity’s next decade will look very different from its last. Gone are the powerful tailwinds of zero interest rates, frothy IT budgets, and cheap financing. Further, as the global economy edges into a post-globalization era, a return to the pre–”Liberation Day” status quo appears increasingly unlikely. These dynamics require portfolio companies and management teams to fundamentally reassess how they operate.
Going forward, the strongest performers will be those that build long-term resilience into their business models. For private firms, generating returns and exits in today’s environment demands sharper asset selection, value creation plans that boost EBITDA, and careful exit strategies. Data and technology offer a competitive edge across these three pillars.
Private equity’s substantial stockpile of dry powder exemplifies how difficult it has become to find attractive deals at the right price. Valuations and asset prices remain elevated despite higher interest rates and financing costs, leaving little room for error in deal assessments. Here, data gives deal teams a competitive edge in the investment process, helping them track shifts in cost structures across sectors, revenue profiles, and other parts of their portfolios, and apply those insights to inform investment decisions. Further, amid fierce competition for deals, data also provides a tool to win over management teams. Bowmark Capital, a Chronograph client, has highlighted how aggregated portfolio data allows it to demonstrate the impact of its value creation strategies across comparable businesses.
While revenue growth has been and will continue to be a key driver of value creation, the efficiency of top-line growth has emerged as a key focus. This marks a shift for private equity where margin expansion has been more of a bonus than a mandate over the past decade. For example, in software, the industry’s largest sector, revenue growth drove 52% of value creation in returns over the past decade while multiple expansion accounted for 42%. Margin growth? Just 6% — and nearly all of that came from top-quartile deals.
Looking ahead, firms that can sharpen unit economics, streamline costs, and drive value at the portfolio level will gain an edge. An operational focus of this kind not only lifts performance, but also embeds resilience into corporate structures, empowering managers to generate returns independent of market cycles or broader macroeconomic movements.
Firms have no shortage of paths to achieve these improvements. Digitally upgrading portfolio companies’ operations has long been a lever for private equity firms to extract efficiencies, and artificial intelligence is fast emerging as the next accelerant. Many managers have already embedded AI into core portco processes — from go-to-market strategies to software development. Vista Equity Partners has even argued that AI’s influence on both revenue growth and margins could reset the industry’s yardstick. The traditional Rule of 40, they suggest, may soon give way to benchmarks of 50% or even 60%.
The industry’s value creation imperative also underscores the advantage of firms with strong data and analytics capabilities. Now more than ever, investors need access to high-quality operational data. Whether value creation plans focus on new growth, operational improvements, M&A opportunities, ESG initiatives, or (likely) a blend of strategies, firms must track progress through detailed KPIs. This enables firms to identify successful strategies and replicate those learnings across their holdings to drive synergies. For example, if a value creation lever is proving effective in an industrial company, centralized data allows that insight to be more quickly recognized and applied to other portfolio companies.
More broadly, some of the biggest opportunities for driving value creation at the portfolio level lie in building structured, reliable datasets and enabling interoperability across disparate investment data. Leading firms are deploying data warehouses to consolidate investment information and surface deeper insights. For example, by linking CRM records with portfolio monitoring data, managers can use AI to test how company performance maps against pre-investment diligence factors, offering a sharper view of what drives success after a deal closes.
Amid a higher rate environment, buyers have raised diligence standards. As underwriting to value creation becomes the norm, sellers must demonstrate clear, achievable paths to projected EBITDA growth and identify where buyers can add further value. This requires sellers to refine the equity story of their portfolio companies. Are value creation initiatives delivering? Is the impact visible in EBITDA? Here, buyers want clear answers, and firms increasingly need the right data to make their case convincingly.
For example, the buy-and-build strategy, one of private equity’s most popular value creation approaches, can make it difficult to generate standardized data across a platform and its subsidiaries. Buyers increasingly want to see the split between organic and inorganic growth to assess how the business performed before and after acquisition synergies. More broadly, companies that have grown organically or through other value creation levers still need to prepare data to tell their story.
Here, many firms face key challenges come time for exit with compiling the data necessary to support buyers’ enhanced diligence scrutiny. In an EY survey, capturing value creation initiatives in exit EBITDA and insufficient data granularity to support a portfolio company’s equity story were cited among firm’s top challenges in exit preparation. Ultimately, as sponsors seek an edge in underwriting, value creation, and exits, consolidating and harmonizing data creates a more effective foundation to identify trends, make smarter decisions, and highlight untapped opportunities for the next buyer.
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