Private equity 2025 outlook: Soft landings into dry powder
While 2024 saw a notable slowdown in dealmaking, there are emerging signs of a recovery that suggest the private equity market could be more vibrant in 2025.
2024 presented multiple challenges
As in 2023, this year bore witness to wide bid-ask spreads and tighter liquidity. When rates rise, borrowing costs for acquisitions also rise, pushing EV/EBITDA 1 down. Buyers pay more to borrow less, thereby lowering the amount they are willing and able to bid for assets.
In a similar way, higher rates have put downward pressure on cash flow multiples, while inflation increases costs for companies lacking adequate pass-through. Sellers, on the other hand, have been attempting to exit assets bought when leverage was cheap and multiples were increasing. These dynamics have created a mismatch between the price buyers are willing to bid and the price sellers are willing to accept.
Reasons for optimism in 2025
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