6 trends shaping the private equity landscape in 2025

With a focus on liquidity and distributions, we expect to see PE firms reintroduce existing assets to the market in 2025 and start making room for new deals.

Pitchbook data shows a 7% increase in exit value in 2024 over 2023, indicating growing momentum with pent-up demand. The median holding period of all PE assets sold in 2024 dropped below 6 years, from 7 years in 2023—an encouraging signal.

Some promising signs suggest that PE firms can break this exit backlog during 2025:

• Favorable macroeconomic conditions in the form of anticipated interest rate cuts are expected to lower the cost of capital, easing underwriting, facilitating M&A and creating a conducive environment for PE exits. The market is ripe for both exits and new acquisitions focused on value creation. We expect buying will increase as PE firms put their dry powder to work.

• The risk for PE is missing this next wave of growth. If firms cannot trim the portfolio and exit existing long hold assets, distributions to LPs suffer and the PE flywheel slows. PE firms will have to adopt innovative strategies to both identify undervalued assets and create value through operational improvements and strategic growth initiatives beyond financial re-engineering. For instance, the median holding period of Software investments has grown 23% and there’s over $1 trillion of undeployed capital. Valuation resets will be driven by not only the strength of the product, but the right talent or commercial understanding to bring it to market effectively.

• Exit plans will evolve and take the form of rapid accelerators. They will need to lean into levers that drive value quickly and set the company on a growth trajectory that extends beyond exit to drive up asset prices. If PE firms can’t do this, it’ll be hard to free up capital and invest in the next wave of growth.

As PE firms manage exits, we should expect to see some younger assets hit the market too—not only those with longer than typical holds. This will be important to create momentum in the market with high-quality assets, increasing prices and serving as a catalyst for increased deal activity.

Mid-market deal making, while not new, has become increasingly popular as larger PE firms explore this segment due to a slowdown in attractive large-cap deals.

Pitchbook data shows that mid-market deal value is currently tracking at over $350 billion, with exit values rebounding 9.1% year-over-year.

Historically, mid-market companies offer greater opportunities for top-line growth and stronger financial outcomes vs. their mature large cap peers. Often, this is realized through the pursuit of inorganic growth, traditional value creation levers and via the introduction of experienced management teams who can quickly deliver results. With more room for inorganic growth—and lower entry multiples—the mid-market also offers opportunities for value creation in an environment where exit windows may be longer as PE firms look to realize consolidation plays in fragmented sub-sectors.

Mid-market assets founded more recently offer additional opportunities. They are typically built on modern technologies and not inhibited by legacy systems that take considerable time and investment to transform. This makes them more agile and allows PE firms to focus on growth opportunities earlier in the deal cycle, making the potential return at exit far more attractive.

An interesting dynamic we are starting to see is where PE firms are building longer-term relationships with founders and operators who have proven track records. This is particularly relevant in the mid-market, where small, innovative companies have potential to scale and generate wealth for both GPs and their management teams—this presents an interesting alternative for skilled mid-market founders/operators vs. traditional career paths in larger corporate environments.

With global PE firms such as Carlyle, Blackstone and KKR, closing multi-billion-dollar funds targeted at the mid-market, this segment is going to be increasingly attractive in 2025.

PE firms have seen the impact modern technologies can have on both operating and exit values and have expressed keen interest in AI. In 2025, we will see an acceleration.

In part, necessity is the mother of invention, and firms keen to maximize multiples and bring high tenure assets back to market are motivated to explore all forms of value creation. And as capital is released, any technologies that can increase the precision of finding assets and accelerating diligence or helping companies operate better are seen as helpful.

The main questions PE firms are asking are ‘how can AI accelerate and increase the accuracy of diligence?’, how can AI drive 10x value vs. 3x value?’, how best should we organize around AI?’

As such, three themes are emerging:

• AI to go ‘faster, better’: With 70% of M&A executives believing generative AI can boost returns, PE firms are both refreshing value creation plans in the context of AI and expecting AI will accelerate diligence. Case in point: Accenture’s GenAI tech diligence reduces assessment time by 50%. Post-deal, AI-powered back-office transformation for portfolio companies also represents a paradigm shift for PE firms looking to create sustained value creation—including for future owners, so we should expect to see more systematic application and sharing of leading practices across the portfolio.

• AI operating partner for PE: Today, every investment must consider, ‘How will this industry be disrupted by AI?’ and just as we’ve seen an increase in Operating Partners with specific sector specialization, the ‘AI Operating Partner’ will become a vital part of PE firms in 2025. Pre-deal, AI-focused partners must assess how the staggering advancement of AI will impact a target. Post-deal, they need to determine how AI can be harnessed to create value and increase productivity across every customer-facing, commercial and corporate function.

• Organization and AI Centers of Excellence (CoE): While PE firms remain skeptical, they are increasingly partnering with service providers to launch AI CoEs. These centers test and validate use cases and outcomes, provide recommendations for portfolio companies and support deal teams with assessments. Moreover, they give hesitant portfolio companies the support needed to not just think about AI, but to start implementing it to create value.

As the year progresses, we expect to see AI play a stronger role in supporting diligence and aligning of investment theses to clearer outcomes, as investment committees demand increasingly comprehensive value creation plans.

Strong leadership will be a competitive advantage as firms look to create sustained growth and inject much needed technology skills into the end-to-end deal lifecycle.

Talent management is crucial for investment success. In 2025, firms will place even greater emphasis on attracting and retaining talent.

PE firms are also rethinking how to attract top talent for their portfolio companies, for what may feel like a different career path for leaders used to working in large-cap organizations. PE firms understand that solving for talent extends beyond the C-suite through middle management to permeate the entire organization. Incentives and access to personal investment opportunities, being part of a broader network of leaders or access to NED roles, and more portfolio companies at the PE firm are all opportunities that can attract talent.

Aligned incentives are important, not only for executives but the entire team who can share the upside of transactions. Since 2011, KKR has awarded billions in equity to 110,000+ non-senior-management employees across more than 50 portfolio companies.

Selecting the right executive team is vital as the wrong choice significantly sets back an investment. Almost two-thirds of PE leaders (62%) spend considerable or extensive time evaluating leadership as part of diligence. Lack of right leadership ranks among the most difficult challenges to overcome in portfolio company value creation, cited by the majority (55%) of PE leaders.

Good leaders also bring the right culture so it’s likely that 2025 will continue to put talent front of mind.

Specialization is gaining momentum, with PE firms launching more sector-specific funds to capitalize on niche markets.

These funds target sectors like healthcare, technology, renewable energy, infrastructure and consumer, leveraging expertise and establishing a competitive edge that drives superior returns. This approach necessitates that firms think about value in a more evolved way and demand a sectoral depth in both diligence and Operating Partner experience.

For example, Technology and Software business buys have been particularly difficult with slowing demand and increased competition. Software investments have gained share of total investments, with 15–20% of PE and VC capital allocations over the last three years vs. 8–12% from 2011–2017. But assets have been left in tough positions as companies look to innovate, wind down legacy products and trim engineering expenses. The “rule of 40”, where the sum of revenue growth rate and profit margin should be at least 40%, has been challenged. And as many companies grew service businesses adjacent to product offerings, there’s been a dilution in free cash flow and EBITDA.

In the Industrial sector, which has shown a markedly lower decline in transactions from 2022–2023 than other industries, companies face internal challenges such as limited agility, difficulty attracting talent and lagging efficiencies due to underinvestment in technology. Externally, they contend with global competition, supply chain disruptions, shifting consumer preferences and rapid technological advancements. PE firms can catalyze transformation, implementing value creation plans over longer holding periods that combine efficiency gains with future-proofing initiatives to achieve desired exit multiples.

The Health sector provides opportunity too, with 85% of CEOs and 79% of health system leaders seeing substantial or transformative change ahead. PE can infuse necessary capital into smaller healthcare firms needing to undergo meaningful change.

Looking at the distributions to paid-in (DPI) ratio, for vintages up to 2019 sector-specialist funds are outperforming generalist funds. Succeeding in industry specialization will require PE firms to develop deep sectoral expertise, enhance their diligence processes and foster strong leadership. By doing so, they can navigate sector complexities and capitalize on new opportunities, driving significant returns.

While PE firms need to be laser focused on delivering value to their LPs, this is an important moment to apply those same disciplines internally.

Looking to the past can provide valuable lessons for the future. Firms that invested after the dot-com bubble burst achieved substantial returns as markets stabilized, and during the global financial crisis many turned their focus to operational improvements.

Many of those lessons apply here: firms that start earlier with their investment thesis—using due diligence that more completely identifies risk and brings deeper knowledge in the sector, technology and operations—will deliver improved yields without having to cull the portfolio. A few points:

• Our research shows PE professionals agree that three-quarters of their efforts should be spent on operational value creation, vs. financial engineering.

• Nearly all (90%) believe higher-quality due diligence consistently improves value creation planning, but most (83%) simultaneously feel there is substantial room for improvement.

• Advanced technologies, such as GenAI can help leverage knowledge from hundreds of deals to improve the quality and speed of investment decision-making while also reducing key risks. GenAI also has an emerging role post-close in driving improved outcomes on both the revenue and cost sides of PE owned businesses.

At Accenture, we follow the same advice we give our clients in this time of relentless change: apply our experience in the sectors we serve to ourselves and act with great agility and boldness.

At the fund and GP level, there’s an opportunity for PE to do the same, and bring efficiency and optimization to its own business. Growth ambitions remain large for PE. While PE firms need to be laser focused on delivering value to their LPs, this is an important moment to apply those same disciplines internally. Optimizing fund management services, moving to Global Capability Centers and leveraging managed service models can enable firms to improve compliance and operate more efficiently.