Outlook for Private Equity and buyout 2025

Louis Flamand: The year 2024 marked a strong comeback for the buyout market buyout a 2023 characterized by economic uncertainty and difficult financing conditions. Stabilizing interest rates and improved access to credit have led to a significant increase in transactions, particularly in the United States and Europe. Exits also increased, although the initial public offering (IPO) market remains sluggish. In contrast, Asia presents a mixed picture, with a growing Japanese market and a marked slowdown in China. In the United States, 2024 was marked by a strong recovery in buyouts, with a 59% increase in transaction volume. This rebound was driven by improved access to credit, with cumulative rate cuts of 100 basis points. The momentum was particularly strong for large-scale transactions exceeding $1 billion, which accounted for 79% of the total value of deals in the United States—a level not seen since 2017. In terms of valuations, the average enterprise value-to-EBITDA multiple was 10.9x, according to Pitchbook in 2024, a 9% decline from the average multiple of 11.9x observed in 2022. The market is citing an average valuation decline of 20%. But the sector mix has shifted since the sharp rise in interest rates in 2022. Fund managers are primarily targeting high-growth defensive sectors, such as software and healthcare, which have structurally higher valuation multiples. In Europe, buyout activity buyout rebounded strongly, more than doubling compared to 2023: up 112%.

Louis Flamand: The narrowing of the gap between the prices expected by sellers and the prices that funds are willing to pay on purchase, the stabilization of credit markets and a more attractive cost of capital have all contributed to this recovery. Two major trends marked private equity transactions in 2024. Firstly, the market for buyouts of listed companies, known as "take-privates", was particularly dynamic, illustrating a growing desire on the part of companies to withdraw from the public markets in order to benefit from greater financial and strategic flexibility. Major deals included the £5.3 billion takeover of Hargreaves Lansdown by CVC and Nordic Capital, and the €2.19 billion acquisition of Exclusive Networks, a French cybersecurity company, by Clayton Dubilier, Rice and Permira. Hargreaves Lansdown can be found inAltaroc 'sOdyssey 2021 portfolios via the Nordic XI Fund and Odyssey 2023 via the CVC IX Fund. Carve-outs also accounted for a significant proportion of activity in Europe, as industrial groups sought to refocus on their core activities. A number of large listed companies sold off non-strategic assets to improve profitability and optimize their capital structures. Examples of this year's European carve-outs include: IGT's Gaming and Digital Business, a £3.2 billion carve-out by Apollo; Inomotics: a €3.5 billion sale by Siemens to KPS Capital Partners; and Summa Equity's €800 million carve-out of Fortum's Finnish recycling and waste management division in the energy sector.

Louis Flamand: In Asia, the buyout market buyout by 3% in volume, though regional dynamics varied significantly. Japan and Australia saw strong activity driven by renewed interest from international investors. In contrast, China continued to slow down, with investments down 28% compared to 2021. As a result of geopolitical tensions and reduced local financing, the exit market showed signs of improvement with a resurgence in M&A activity and a slight uptick in IPOs. M&A exits increased by 22% compared to 2023, returning to levels close to pre-pandemic levels, although still below them. Private equity-sponsored IPOs reached $19.9 billion in 2024, an 80% increase compared to the previous two years. Furthermore, the secondary market continued to grow, with GP-led transactions totaling $75 billion, confirming their growing role as an alternative to traditional exits. GP-LED transactions allow fund managers to transfer certain assets from their existing portfolios into continuation funds. This mechanism offers a solution for investors seeking liquidity while enabling general partners to continue managing attractive assets without immediately selling them on the traditional market. The rise of this strategy can be attributed to several factors. On the one hand, a challenging exit environment via IPO or M&A, and on the other, the growing need for investors to generate liquidity in an environment where distributions remain limited.

Louis Flamand: The fundraising market, meanwhile, remained under pressure in 2024, with an overall 34% decline in the amount raised for buyout. This contraction reflects the caution of institutional investors and the weak distributions from existing funds. However, major managers continued to dominate the market with significant fundraisings such as EQT X, which raised €22 billion; Cinven VIII, which reached €13 billion; and New Mountain Partners VII, which raised $15 billion. In conclusion, 2024 was marked by a significant recovery in the buyout market, driven by improved macroeconomic and financing conditions that fostered an increase in transactions, particularly in the United States and Europe. It is interesting to note that in both the United States and Europe, buyouts of publicly traded companies—known as “take-private” or “public-to-private” transactions—are becoming increasingly common. As a reminder, the number of publicly traded companies in the United States has halved since the mid-1990s. This reflects companies’ desire to avoid the volatility of public markets, growing regulatory constraints, and the pressure of quarterly earnings. Meanwhile, private equity funds offer strategic flexibility, access to attractive financing, and long-term management focused exclusively on value creation. Donald Trump’s election in the United States at the end of the year was well received by the market, and initial feedback from the field indicates an acceleration of activity in the United States. Improving market conditions, with potentially further interest rate cuts on the horizon, could continue to support buyout activity buyout Europe in 2025.

Louis Flamand: Although investors remain cautious about macroeconomic risks and geopolitical uncertainties for 2025, a combination of factors could support an increase in M&A exits. A large inventory of mature companies held by funds that will need to generate distributions for their IPRs. A more stable economic environment, reducing valuation uncertainties. Still substantial dry powder, allowing private equity funds to consider buyouts from other funds or strategic acquisitions. A more accommodating Trump administration on anti-trust rules, making it easier for private equity funds to exit the US industrial market.

Louis Flamand: The secondary market, especially GP-LED transactions, should continue to grow as a viable alternative to traditional exits. Finally, although fundraising remains below the record levels of previous years. It could gradually improve depending on the pace of distributions to LPs. For us investors, this slowdown is excellent news. Less capital raised means less competition for future deals. Historically, the worst-performing vintages correspond to periods of strong fundraising, when investors recommit massively due to an influx of distributions. These high distributions generally result from a buoyant market for exits, where valuations are high. An ideal context for selling, but far less favorable for buying. Conversely, more difficult fund-raising periods often coincide with more attractive investment opportunities, leading to good vintages.

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