The persistent disconnect between buyers and sellers on valuations remains the biggest obstacle to private equity dealmaking in 2025, with deal activity expected to recover only gradually as monetary loosening progresses, argued Preqin in its latest ‘Asset Allocation: Outlook 2025’ report. on 20 February 2025, the report from the global provider of alternatives data and insights examined macroeconomic trends, public market conditions and geopolitical factors influencing asset allocation decisions. It also identified debt and deregulation as emerging considerations for investors this year.
According to Paul Sinthunont, vice president of research insights at Preqin and lead author of the report, private equity dealmaking remains subdued due to “disconnect between buyers and sellers on valuations.” He noted that while falling interest rates--particularly in the US--could facilitate transactions by returning capital to investors and enabling future commitments, US rates may remain steadier in 2025 than previously anticipated.
One indicator of a potential recovery in private equity activity is the increase in North American public equities’ median valuation multiples, which have risen in recent years following a decline in 2022. As a result, some industries saw median North American buyout entry valuations trade at a discount to public markets in 2024 deals. However, Sinthunont stated that despite record levels of dry powder creating a strong demand side, many sellers were unwilling to adjust their pricing expectations. He concluded that deal activity was likely to improve as monetary easing progressed, albeit more slowly than previously expected.
PE dealmaking
Preqin data showed that global private equity deal volume fell to a low in Q4 2024, matching levels last seen in Q2 2020 during the covid-19 pandemic. A total of 1,434 deals were recorded in the quarter, despite declining interest rates and stronger-than-expected economic growth in North America. The report found that a meaningful rebound in private equity transactions had yet to materialise.
However, an increase in non-sponsored mergers and acquisitions activity signalled a potential revival in sponsored dealmaking, said Preqin. Non-sponsored M&A transactions grew by 12.9% in Q3 and Q4 2024 compared to the same period in 2023, suggesting a possible shift in market conditions.
Investor optimism
Preqin’s November 2024 investor survey found that 50% of private equity investors planned to allocate more capital to the asset class in 2025. Additionally, 49% expected private equity to deliver stronger performance this year compared to 2024.
While capital remained available for deployment, the report concluded that a sustained recovery in private equity dealmaking would depend on interest rate trends, valuation adjustments and broader market confidence.