Private Equity’s Next Move is Loading

Private equity entered 2025 with cautious optimism, buoyed by signs of strength at the end of 2024. Last year brought declining inflation, favorable credit markets, and healthy year-end exits. However, by early 2025, macroeconomic turbulence – particularly tariffs and general policy instability – cast a shadow over dealmaking. Through Q2 2025, strategic buyers remained cautious, financial sponsors picky, and IPO markets choppy. There’s a growing consensus that we’re in a holding pattern, waiting for clarity on trade policy and regulatory direction. By nature, uncertainty coupled with a five-year leverage model is a difficult combination. Nevertheless, private equity drives forward to do what it does best: acclimating to challenging terrain and working toward a free flowing deal cycle.

We believe that once the market instability subsides, exits and platform deals will ramp up swiftly. In the meantime, emphasis lies in what managers are doing to remain effective, capitalize on market opportunities and dislocations, and prepare for a bounce back.

Waiting by the Flood Gates

Unlike previous market downturns, this time is different. Today, the market benefits from tremendous dry powder and available credit; we are not dealing with the aftermath of burst asset bubbles, nor is the economy in recession. This time, the issue is not a lack of capital but a lack of clarity. GPs are waiting for stability – regardless of the outcome on tariffs, interest rates, or other macro factors – as stability alone will bolster confidence and set the PE flywheel spinning toward a rapid rebound. Until then, the challenge lies in keeping assets competitive and well-positioned for when momentum returns.

Operational Focus and Earnings Growth

With valuations holding steady and exit multiples under pressure, private equity firms are increasingly turning to operational value creation as the key to generating returns. Unlike in recent years – when financial engineering played a dominant role – today’s environment demands real business transformation.  This is especially true for companies exposed to shifting cost structures and supply chain disruptions driven by evolving tariff policy. Success now hinges on the ability to strengthen both top-line performance and profitability – differentiating assets in an otherwise challenging exit environment.

What Private Equity Firms Should Do Now

To remain competitive and drive returns during this period of transition, firms should:

• Accelerate and prioritize exits: Assess which portfolio assets can be exited, when, and through which channels. Even if it means accepting lower multiples, consider strategic sales that return capital and minimize the drag of extended hold periods.
• Plan for deals: Those investors who have a strategy in place for when deal flow resumes will have the advantage. Which assets do you want to own? Are you ready to move when the right opportunities emerge?
• Strengthen execution capabilities: Enhance supply chain resilience through supplier diversification and better use of data for inventory and logistics. Leverage AI and advanced analytics to streamline decision-making and challenge where improved access to data, in less time, could unlock value in a more financially constrained environment.
• Target undervalued assets: Identify targets undervalued by short-term market dislocations and develop clear, forward-looking strategies to scale or transform them post-acquisition.

Looking Ahead

Our outlook for the second half of 2025 remains cautiously optimistic. Once macroeconomic conditions stabilize, particularly regarding tariffs and inflation, the market could experience a rapid recovery in dealmaking. Firms that stay disciplined, proactive, and adaptable now will be in the best position to capitalize on this resurgence. The next 6-12 months will favor GPs who cut through the noise and take bold proactive steps – sourcing deals, accelerating value creation and driving true operational transformation.