Private equity and buyout outlook to 2025

Louis Flamand: 2024 marked a strong comeback for the buyout market after a year of economic uncertainty and difficult financing conditions in 2023. The stabilization of interest rates and improved access to credit led to a significant increase in transactions, particularly in the United States and Europe. Exits have also increased, although the IPO market remains timid. Asia, on the other hand, is showing contrasting trends, with a growing Japanese market and a marked slowdown in China. In the United States, 2024 was marked by a sharp upturn in Buy-Outs, with a 59% increase in transaction volume. This rebound was boosted by improved access to credit, with cumulative rate cuts of 100 basis points. Momentum was particularly strong for large-scale transactions in excess of $1 billion, which accounted for 79% of total deal value in the US, 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, down 9% on the average multiple of 11.9x observed in 2022. The market is talking about an average 20% drop in valuation. But the sector mix has changed since the sharp rise in rates in 2022. Managers are now focusing on defensive, high-growth sectors such as software and healthcare, whose valuation multiples are structurally higher. In Europe, buyout activity has 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 grew by 3% in volume terms, but with very heterogeneous regional dynamics. Japan and Australia reported strong activity, driven by renewed interest from international investors. China, on the other hand, continued its slowdown, 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 recovery in M&A transactions and a slight upturn in IPOs. M&A exits were up 22% on 2023, returning to pre-pandemic levels, although still lagging behind. Private equity-sponsored IPOs reached $19.9 billion in 2024, up 80% on the previous two years. In addition, the secondary market continued to expand, with GP-LED transactions totaling $75 billion, confirming their growing role as an alternative to traditional exits. GP-LED transactions enable fund managers to transfer certain assets from their existing portfolios into continuation funds. This mechanism offers a solution to investors seeking liquidity, while enabling general partners to continue managing attractive assets without immediately selling them on the traditional market. There are a number of reasons why this strategy has taken off. On the one hand, a difficult exit context via IPO or M&A, and on the other, investors' growing need to free up cash in an environment where distributions remain limited.

Louis Flamand: The fundraising market remained under pressure in 2024, with an overall 34% drop in buyout amounts raised. This contraction reflects the caution of institutional investors and weak distributions from existing funds. However, the big managers continued to dominate the market, with major raises such as EQT X, which raised €22 billion Cinven VIII, which reached the size of €13 billion, and New Mountain Partner VII, which raised $15 billion. In conclusion, 2024 was marked by a significant upturn in the buyout market, driven by improved macroeconomic and financing conditions favoring an increase in transactions, particularly in the United States and Europe. It is interesting to note that in both the United States and Europe, "take private" or "public to private" buyouts of listed companies are becoming increasingly common. As a reminder, the number of listed companies in the United States has been halved since the mid-90s. This reflects companies' desire to avoid the volatility of public markets, increasing regulatory constraints and the pressure of quarterly results. Private equity funds, on the other hand, 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 shows an acceleration of activity in the US. Improving market conditions, with potentially further interest rate cuts in sight, could continue to support buyout activity in 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.

‍