How Tariffs Could Impact Private Equity Dealmaking and Exits

After a few years of sluggish activity, private equity dealmaking finally showed signs of life late last year. Exit volumes, which had been restrained by high interest rates and a broad bid-ask spread, saw a notable increase as the year came to a close. Heading into 2025, optimism was building among dealmakers that this renewed momentum could begin to chip away at the $3.2 trillion in unrealized NAV tied up across 29,000 buyout-backed companies. 

However, President Trump’s “Liberation Day” tariffs have since jolted private equity back into uncertainty, stalling its long-awaited recovery and casting doubt on the industry’s ability to clear its growing backlog and reignite dealmaking in the months ahead. 

The 90-day pause has certainly offered some relief. However, unlocking deal activity at scale still hinges on greater clarity. While some deals will inevitably move forward, a true inflection point is more likely to come once comprehensive trade agreements are finalized that give dealmakers the certainty needed to model pricing, margins, and EBITDA with confidence. 

How Will Tariffs Pressure Portfolio Company Cost Structures?

A key concern for private equity investors is how tariffs could disrupt portfolio company cost structures. By driving up the price of imported components, tariffs threaten to compress margins, undercut competitiveness, and erode profitability in companies where global supply chains are deeply embedded. Further, any hit to cash flows tightens interest coverage ratios, bringing leverage and covenant risks into sharper focus.

That said, in many ways, private equity may prove more insulated from tariff shocks than public markets, owing to its sectoral tilt away from import-heavy verticals. Unlike public equity markets, which include a higher concentration of manufacturing, consumer, and trade-exposed businesses, private equity portfolios tend to lean more heavily on service-driven industries such as software, healthcare, and professional services.

For example, nearly half of all private equity-backed companies operate in these service-oriented sectors, compared to just 27% of firms in the S&P 500. This bias toward “intellectual-based” companies over those dependent on physical goods may offer the industry a buffer, at least in the near term, against the worst of tariff-driven cost pressures.

However, tariff-induced inflationary pressures and the potential for an economic slowdown or recession would weigh heavily on portfolio companies across the board. Such second-order effects are harder to gauge. Should the current policy environment tip the global economy into a more prolonged downturn, even the most insulated business models will face repercussions.

How Will Tariffs Impact Private Equity Deal Activity?

When forward-looking business performance or the economic outlook grows uncertain, investors tend to pull back and dealmaking slows. Tariffs and their murky direct and downstream economic effects cast a shadow over the fate of near-term deal volumes, as they ultimately prompt deeper scrutiny of valuations and borrower creditworthiness.

This stands to revive (at least temporarily) a bid-ask spread in certain transactions. Sellers will likely postpone bringing assets to market until greater clarity returns. Meanwhile, buyers, reluctant to overpay in an uncertain environment, are spending more time in diligence, stress-testing models, and weighing tariff exposures. As a result, a cautious approach will characterize most deals.

That said, as has been the consistent theme in private markets in recent years, the highest-quality assets continue to attract buyers regardless of broader economic conditions. In the coming months dealmakers will likely continue focusing on these premium assets. 

With Tariff Uncertainty, Comes Opportunity

Private markets’ long-term horizons have consistently shown resilience, even in periods of disruption. Tariffs are no exception. While the near-term outlook for dealmaking and exits remains shadowed, uncertainty also opens the door to investors willing to act opportunistically. With record levels of dry powder still on hand, private equity firms have the capital ready to deploy when dislocation creates attractive entry points.

For instance, as public companies come under pressure, they often emerge as prime candidates for take-privates, as buyout firms can acquire these assets and drive value creation away from the scrutiny of public markets. Similarly, as corporates look to sharpen their focus and shed non-core assets, carve-outs might also present attractive opportunities.

Further, as near-term uncertainty dampens dealmaking, LPs grappling with liquidity pressures from stalled exits are increasingly turning to the secondaries market to manage their portfolios. In the wake of “Liberation Day,” several high-profile pensions and endowments have already begun shopping sizable portfolios on the secondaries market, seeking to rebalance and unlock capital.

At the same time, continuation funds are expected to remain a favored tool among sponsors looking to extend the holding period of high-conviction assets while managing liquidity constraints. Together, these trends set the stage for a potentially attractive environment for secondaries investors, as supply grows and pricing adjusts.

Ultimately, active management empowers private equity with a distinct advantage amid lingering tariff uncertainties. Despite macroeconomic headwinds, investors retain the ability to focus on company-level fundamentals and drive operational improvements. This direct influence and ability to hold and drive value in assets through periods of volatility and dislocation is one of the asset class’s most defining strengths. Still, the ability to accurately gauge impact and work directly with portfolio companies on strategic responses depends on having a unified view of both operational and financial data.

Explore our client case studies to see how top private equity investors use Chronograph during major market events — from tariffs to the regional banking crisis, Covid-19, and the Ukraine war — to quickly assess portfolio impacts and craft strategic responses.