Investors ramping up pressure on PE firms to strike deals

Heading into 2025, pressure is building on private equity firms to increase their activity, following years of slower dealmaking. While deal value increased during 2024, investors are seemingly applying pressure on fund managers to further increase both their disposals of mature assets and deployment of unspent capital.

According to an October 2024 report from EY, the value of private equity deals surged 36 per cent during the first three quarters of last year, compared to the same period of 2023. Deal value was seemingly boosted by narrowing valuation gaps and improved M&A sentiment.

Deal volume also improved, with EY again citing closing valuation gaps and rising sentiment as contributing factors. However, the increase in volume was significantly lower than the rise in value, with volume rising 18 per cent during the first three quarters of 2024.

Private equity investors are seemingly growing impatient with the slow pace of growth in activity and, according to a recent City AM report, they are beginning to apply pressure on firms to begin striking deals.

While PE activity has picked up considerably since the mid-point of 2024, this uptick followed a period of significant decline beginning in early 2022. Overall, excluding a post-COVID-19 2021 surge in M&A, private equity activity has been largely quiet since the onset of the pandemic.

Heightened risk and economic factors such as soaring interest rates have dampened dealmaking sentiment, with this slower rate of activity enabling PE firms to amass huge sums of unspent capital.

According to the City AM report, lawyers and bankers say that private equity limited partners are increasingly agitating for PE firms to up their activity. The report quotes Adam Wedgwood, Cavendish’s Head of Financial Sponsor Coverage, who claims that market confidence is increasing amid signs of market improvement, leading to higher risk tolerance among PE firms.

Low valuations and a slower IPO market have meant that many PE firms have also held on to assets longer than they normally would, leading to lower returns for investors. While the year ending November 1 2024 saw a nearly 50 per cent increase in private equity exits compared to the previous year, distributions to investors have remained significantly below expectations, with the majority of exits through M&A, rather than more lucrative public listings.

This is leading investors to apply pressure on firms to train their focus more on returns during 2025, while reportedly making many institutional investors more wary of private equity funds that do not have a strong track record of distributions.

City AM quote John Taylor, a private equity partner at Herbert Smith Freehills, who said the firm was "aware of more situations where LPs [limited partners] are putting pressure on GPs [general partners] to do something”.

Meanwhile, HSF M&A and Equity Capital Markets partner Michael Jacobs is quoted as saying that, while there is “not an infinite supply of patience to crystallise returns”, LPs are “economically rational at the end of the day”.

Amid improved dealmaking conditions, and with both M&A sentiment and investor pressure both seemingly on the rise, private equity activity is widely expected to continue increasing during 2025, despite geopolitical and macroeconomic uncertainty both remaining prevalent concerns.


Read more about trends in private equity M&A:

PE exits up nearly 50 per cent in year to November

UK M&A outlook 2025

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