We asked 200 private equity (PE) leaders across the globe to share their priorities for this year. Here are the headlines:  

  • Globally, most (67%) PE firms intend to increase investment in 2025
  • However, only 50% UK PE firms plan to increase investment in 2025
  • Globally, PE firms believe specialist ESG funds are no longer needed
  • UK PE houses are battling a skills drain
  • People and services based businesses are 2025’s hottest investment target 

Concerns around geopolitical stability, availability of finance, and the economic climate persist. However, the anticipation of cheaper debt is expected to drive deal numbers in 2025, and a realignment of price expectations between sellers and PE firms is likely to further boost activity. 

Head of Private Equity

Peter Terry

“PE firms value insight on how their peers are reacting to current challenges and trends. Our Private Equity Pulse survey shares an inside view across global and domestic markets.

Globally, PE funds are optimistic about the year ahead, with the majority intending to boost spending by up to 25%. However, UK investors are slightly less bullish. Below, we explore why and uncover the industry’s views on issues like inflation, debt, and technology.

I hope you’ll find this data a valuable benchmark for your own approach: if you’re not one of the 72% of PE firms using AI to drive decision-making, should you be? And how do your exit strategies compare to others?

We’d be happy to help you answer these questions and any others that arise from our data.” 

Growth barriers: the search for quality assets

Top five growth barriers (globally)  

  1. Availability of finance
  2. Geopolitical stability
  3. Economic climate
  4. Regulatory environment
  5. Deal sourcing 

Top five growth barriers (UK only)

  1. Finding and retaining top talent
  2. Regulatory environment
  3. Availability of finance
  4. Conditions for exits and liquidity events
  5. Deal sourcing 

As geopolitical tensions continue and the US introduces trade tariffs, 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, especially among US respondents, where intense competition in the mid-market means assets can be marketed to hundreds of potential buyers.  

The UK view

Unlike global firms, the availability of finance doesn’t seem a pressing issue for UK private equity houses. 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 of growth barriers. This is caused in part by a growing number of investors spinning out from PE firms to start their own funds. 

Deal drivers: are we heading for a valuation accord?

Top five deal drivers (all regions)

  1. Greater availability of debt financing
  2. A decline in valuations
  3. More assets coming to market
  4. Increase in fundraising  
  5. Central bank rate cuts 

Top five deal drivers (UK only)

  1. A decline in valuations
  2. Greater availability of debt financing
  3. Greater macro-economic certainty
  4. More assets coming to market
  5. Central bank rate cuts 
Head of Debt Advisory

George Fieldhouse

“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.

We’ve seen this before; 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 welcome a decline in valuations.

Though the cost of debt is falling, private equity 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.

Where and how much will PE invest?

Net movement in overall investment levels

Globally, the picture is positive: the majority of PE firms are looking 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.

This may be due to a less bullish economic forecast in the UK, which has been further compounded by budget announcements relating to areas such as NI taxes and minimum wage.  

In February 2025, the Bank of England revised its growth forecast for UK 2025 GDP to 0.75%, a reduction from previous estimates of 1.5%. 

Amo Anim-Addo – Partner, Head of Private Equity Coverage – gives his views on the drivers of deal volume in 2025.

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The US perspective

“We expect the 2025 US private equity market to be more active than in 2023 and 2024, driven in part by the need to deploy pent-up capital and show returns on previous investments.

While a decrease in US interest rates is unlikely, the anticipated relaxed regulatory stance from President Trump’s administration is expected to positively impact the deals market.

However, new trade tariffs may complicate or delay deals, primarily impacting businesses with a presence in multiple geographies. They may lead to inflation, which can put pressure on rates and complicate supply chains. Such an environment may drive investments towards service-based rather than manufacturing businesses.

Despite this, there is still pressure to move forward with exits and realise capital. This is particularly the case for PE funds that invested when borrowing costs were low and multiples were high. Many have chosen to delay exits until the economic environment is more favourable.

On balance, there is generally optimistic sentiment around PE markets driven by the level of dry powder, changing political landscape and the need to exit and show returns, all of which should contribute to a more robust market in 2025.” 

Greg Westfall, National Managing Private Equity Principal, Grant Thornton US

Target sectors

Top five investment sectors (all regions)

  1. Financial services
  2. Technology
  3. HR and talent
  4. Sustainability
  5. Energy

Top five investment sectors (UK only)

  1. HR and talent
  2. Consultancy
  3. Food and beverage
  4. Facilities management
  5. Financial services

With companies across the globe struggling to attract and retain the right talent, it’s clear why HR-centric firms are high on investor shopping lists, both globally and in the UK.

It’s also notable that sectors that support digital and regulatory transformation dominated the top five globally, as PE looks to leverage the increasing demands for such services and limit their exposure to people-heavy sectors and challenges around labour.

Our global and UK respondents also said they are keen to invest in financial services firms in 2025. The sector has strong fundamentals, including predictable cash flows, the potential for digital transformation, and consolidation opportunities.

Nearly two-thirds of respondents are also prioritising investment in public sector over private sector assets, as they seek haven in secure government contracts.

Head of Transaction Tax

Lucy Orhnial

“From a sector perspective, our team has noted similar trends to those in the survey results. However, we are seeing particularly strong deal activity in the Facilities Management and Financial Services sectors.

Within the HR and recruitment sector, recruitment itself is still slow. Still, we expect the wider people and talent arena, encompassing training, up-skilling and talent consulting, to have strong levels of activity as employers seek solutions to develop and retain key staff.”

Asset management: What are firms most focused on post-transaction?

pe-pulse-survey- “What are you most focused on post-transaction?”

The surprising result here was that 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.

Exits: is IPO appetite growing?

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 private equity firms (all regions) said that their preferred exit strategy was an 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.

Read more: UK listing rules: Has the FCA made IPOs easier?

 

Debt: how is PE responding to high interest rates?

Graphic depicting survey results

PE houses have reacted to high interest rates by considering debt early in transaction processes. They’re also looking at options such as alternative debt funds and unitranche financing. An alternative mechanism is replacing debt with equity stakes.

A strategic approach to debt is a must in the current environment. Traditional funds may offer lower levels of leverage at lower margins but are less flexible financially. Conversely, alternative debt funds command higher margins but can structure loans to minimise near-term cash costs.  

Digital and technology: AI guides PE decision making

68%

of PE firms agree that digital transformation has significantly improved the performance of portfolio companies.

72%

of PE firms use AI and machine learning in their investment analysis and decision making.

In the last two years, private equity firms have had to decipher what rapidly evolving artificial intelligence means for their portfolio as well as their own operations.

They are increasingly incorporating AI into their processes for more efficient and informed investment decisions and effective risk management.

This new generation of software enables funds to identify market trends and comprehensively analyse multiple data sources. Examples include predictive analytics and natural language processing for pre-investment research, streamlining due diligence, optimising exit timing, and scenario simulations.

Funds are also leveraging AI across their portfolios to enhance performance and optimise growth. AI-supported data analysis across elements such as pricing, supply chain management and customer churn are key examples of where PE is driving value creation within their investments.

ESG: are specialist impact funds outdated?

The last 20 years saw the emergence of private equity funds dedicated to aligning financial returns with social and environmental impacts.

The view from the industry (68%) is that the widespread adoption of ESG principles means that there’s no longer a need for specialists. Seventy-three per cent said that ESG is integral to their investment strategy, with regulatory compliance being 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 reporting back to stakeholders on ESG quarterly and 34% reporting on a half-yearly basis.  

Head of Private Equity

Peter Terry

“All sectors are likely to be impacted by geopolitical stability, availability of finance, and the economic climate. However, our survey shows that private equity keeps calm and doubles down in challenging conditions. Some 72% of respondents said their firm increases investments in volatile markets.

It’s clear from our research and our own work with clients that the appetite for investment is there in the private equity market, and many are optimistic about the outlook for the next 12 months, especially as vendors’ price expectations become more aligned with PE funding appetite.”

Methodology and respondent details

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200 respondents

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Investment directors, managers, and originators

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UK, USA, EMEA, and APAC

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Mean investment size of respondents’ firms – £70+ million

Interviews were conducted between 27 November and 23 December 2024.