© 2025 M&T Bank and its affiliates and subsidiaries. All rights reserved.
Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation’s international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member, FDIC. 
M&T Bank Corporation’s European subsidiaries (Wilmington Trust (UK) Limited, Wilmington Trust (London) Limited, Wilmington Trust SP Services (London) Limited, Wilmington Trust SP Services (Dublin) Limited, Wilmington Trust SP Services (Frankfurt) GmbH and Wilmington Trust SAS) provide international corporate and institutional services.
WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov. 
Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.
M&T Bank  Equal Housing Lender. Bank NMLS #381076. Member FDIC. 
Investment and Insurance Products   • Are NOT Deposits  • Are NOT FDIC Insured  • Are NOT Insured By Any Federal Government Agency  • Have NO Bank Guarantee  • May Go Down In Value  
Investing involves risks and you may incur a profit or a loss. Past performance cannot guarantee future results. This material is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any security or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. There is no assurance that any investment, financial or estate planning strategy will be successful.

After a stellar initial acceleration, private equity (PE) managers have struggled to maintain their pandemic-era speed. Last year we explored the sluggish deal environment that had persisted through 2023, highlighting the difficulty managers were having in exiting investments and returning capital to investors. The macro environment has shifted significantly since then, though. Rates have started to come down, inflation is under control, and a new U.S. administration is likely to support a more business-friendly regulatory environment. With PE managers sitting on high levels of undeployed capital, seeking to placate distribution-hungry investors, and keen to take advantage of these tailwinds, the stage is set for stronger potential dealmaking in 2025. PE managers may be back in the driver’s seat.

Deal activity

The first three quarters of 2024 showed signs of recovery from the 2022/2023 doldrums, with both deal value and deal count increasing on a year-over-year basis.  Pitchbook, a provider of private markets data, estimates that the industry will see a year-end deal value of over $860 billion[1], representing the third-highest total value ever, thereby ending a two-year dealmaking slump.

Figure 1: U.S. PE on pace to increase deal count and volume by year-end 2024

U.S. PE Deal Activity

Source: Pitchbook.  2024 data through Sept 30.  Deal count and total value for 2023 and 2024 is estimated.

Importantly, and especially relative to the last two years, growth equity investments and platform buyouts increased in value and count during 3Q 2024 versus the prior quarter. Growth equity deals (often minimally leveraged minority capital investments in fast-growing businesses) bottomed out in 2022. Rising rates caused a massive valuation reset in high growth sectors and companies avoided seeking additional capital at lower valuations. Platform buyouts (large buyout deals that frequently form the backbone of a buyout manager’s portfolio) followed suit shortly after, stalling amid disagreements between buyers and sellers as to appropriate valuation multiples in a new rate environment and the increased cost of borrowing to fund these deals. In 2023, growth equity deal counts outpaced platform buyouts for the first time, and, despite the increase in buyout activity, the gap widened in 2024.[2]

Add-on acquisitions, the purchase of smaller companies as synergistic additions to a platform deal, have long been a key part of the PE toolkit and took on an even more prominent role in recent years, accounting for three quarters of total buyout activity.  Since the 2022 rate hikes, add-ons enabled PE firms to deploy more manageable amounts of capital with less reliance on leverage during a period of tight credit conditions. They continued apace through 2024, with add-ons in 3Q representing 76% of all PE buyouts, up 1% over the 2023 average for the year.[3]  With the pickup in platform deals, though, expectations are that add-ons will represent a smaller percentage of total buyouts in the medium-term.

Figure 2: Add-ons ramped up during periods of easy borrowing, and maintained their prominence as larger deals dried up

Add-ons as a Share of all U.S. PE Buyouts

Pitchbook. 2024 data through September 30, 2024.

Exits

In line with stronger deal activity, exit momentum has also improved, particularly in the U.S. In the first nine months of the year, exit value rebounded by 50% year over year[4], though the rosy numbers are somewhat misleading. Exits by count remain depressed relative to even last year’s total and below the 10-year average. The increase in value is primarily driven by PE managers bringing only their star assets—those with the best performance and highest anticipated demand—to market in order to crystalize strong returns while holding back other assets for a more favorable environment.

Figure 3: PE-backed exits have increased in value, driven by a smaller number of larger sales/IPOs

U.S. PE Exit Activity

Source: Pitchbook.  Data through Sept 30.  2024 data is estimated.

The third quarter saw the largest number of exits, as well as the largest value generation, since 4Q 2021.  This trend is positive for Limited Partners (LP) seeking liquidity from older PE vintages. However, given the uptick in investment activity, the exit to new investment ratio continues to fall. Through September, the estimated capital invested has outpaced proceeds by roughly $300 billion[5]. This ratio has not been 1:1 as the PE industry continues to grow and funds get larger, but sharp downward trends could indicate that LPs are not receiving distributions that could be used to commit to future funds and fuel continued deal activity.

Figure 4: Despite the recent increase in exit activity, strong investment cadence has continued to push the exit/investment ratio lower.

Exit/investment Ratio

Source: Pitchbook.  Data through September 30, 2024.

The largest source of exit value relative to prior years is the notable increase in initial public offering (IPO) activity. The IPO market, though still underperforming historical averages, has shown a distinct thawing in 2024, supported by moderating rate expectations and strong stock performance. A select number of the best and brightest PE-backed companies have has successful IPOs so far this year, including KinderCare ($2.7B valuation, $576M in proceeds) and Viking River Cruises ($9.7B valuation, $1.5B in proceeds)[6], with 2024 year-to-date (YTD) PE-backed IPO value handily outpacing 2022 and 2023. 

Figures 4/5: The opening of the IPO market has driven the largest shift in value creation relative to prior years, but IPOs remain a tiny percentage of total exits by count

Source: Pitchbook.  Data through September 30, 2024.

Unlike the pandemic boom years, investors in the IPO market have been discerning, accepting only the highest quality assets. Private exits to other sponsors or to synergistic strategics remain an option, with both continuing to climb from the 2023 bottom. However, the slow recovery of exit activity has driven some PE managers to seek alternative liquidity solutions, including continuation vehicles (CVs). CVs are designed to extend the holding period of one or more portfolio companies that are approaching the end of their standard holding period but where the manager wishes to retain control of what they see as a promising company. Managers often sell the position from the initial investment vehicle to the CV at a set price, an opportunity for existing LPs to exit if they wish and for new LPs to buy in. While beneficial to LPs who are seeking distributions during periods of stress, CVs can also present conflicts of interest relative to an exit to a third party since the PE manager represents both the buyer and the seller of the asset. Pitchbook estimates that at least 82 CVs were launched in 2023 as other sources of exits dried up, with 2024 on pace to surpass that total.[7]   

Core narrative

While the pick-up has been slower than desired, PE activity is gaining momentum. As valuation gaps shrink, the cost of capital comes down, and managers seek to fundraise their next vintage, conditions are ripe for putting money to work and generating increased distributions. These factors should be amplified by the new administration, as it has indicated a strong preference for pro-business policies and deregulation. The number of PE-backed prospective merger and acquisition deals terminated prior to close fell for the fifth consecutive quarter in 3Q 2024[8], indicating a continued willingness to get deals done.

Delayed exits may cause near-term headaches, but having patience could create opportunities for sponsors to further upgrade their portfolio companies and allow them to exit with a stronger firm in a more supportive environment. While it can be challenging to pause and reflect amid negative headlines or sentiment, it’s important to note that PE funds have historically delivered outsized returns by looking past short-term market dynamics to buy and sell companies on their own timetable.

[1] Pitchbook Q3 2024 US PE Breakdown

[2] Pitchbook Q3 2024 US PE Breakdown

[3] Pitchbook Q3 2024 US PE Breakdown

[4] Pitchbook Q3 2024 US PE Breakdown

[5] Pitchbook Q3 2024 US PE Breakdown

[6] Q4 2024 Pitchbook Analyst Note: Top US-PE Backed IPO Candidates and Outlook

[7] Pitchbook Q3 2024 US PE Breakdown

[8] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/shrinking-private-equity-exit-value-declining-deal-terminations-83656310

 

Disclosures

Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of Wilmington Trust or M&T Bank who may provide or seek to provide financial services to entities referred to in this report. M&T Bank and Wilmington Trust have established information barriers between their various business groups. As a result, M&T Bank and Wilmington Trust do not disclose certain client relationships with, or compensation received from, such entities in their reports.

The information on Wilmington Wire has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates, and projections constitute the judgment of Wilmington Trust and are subject to change without notice. This commentary is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor’s objectives, financial situation, and particular needs. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will succeed.

Past performance cannot guarantee future results. Investing involves risk and you may incur a profit or a loss.

Indexes are not available for direct investment. Investment in a security or strategy designed to replicate the performance of an index will incur expenses such as management fees and transaction costs which will reduce returns.

CFA® Institute marks are trademarks owned by the Chartered Financial Analyst® Institute.

There is no guarantee that integrating environmental, social, or governance (ESG) analysis will provide improved risk-adjusted returns over any specific time period. The evaluation of ESG factors will affect the strategy’s exposure to certain issuers, industries, sectors, regions, and countries and may impact the relative financial performance of the strategy depending on whether such investments are in or out of favor.

Any investment products discussed in this commentary are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by M&T Bank, Wilmington Trust, or any other bank or entity, and are subject to risks, including a possible loss of the principal amount invested.

Investments that focus on alternative assets are subject to increased risk and loss of principal and are not suitable for all investors.

 

Disclosures:

    • © 2025 M&T Bank and its affiliates and subsidiaries. All rights reserved.
    • Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), Wilmington Trust Asset Management, LLC (WTAM), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation’s international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank. Member, FDIC. 
    • M&T Bank Corporation’s European subsidiaries (Wilmington Trust (UK) Limited, Wilmington Trust (London) Limited, Wilmington Trust SP Services (London) Limited, Wilmington Trust SP Services (Dublin) Limited, Wilmington Trust SP Services (Frankfurt) GmbH and Wilmington Trust SAS) provide international corporate and institutional services.
    • WTIA, WFMC, WTAM, and WTIM are investment advisors registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply any level of skill or training. Additional Information about WTIA, WFMC, WTAM, and WTIM is also available on the SEC's website at adviserinfo.sec.gov. 
    • Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services.
    • M&T Bank  Equal Housing Lender. Bank NMLS #381076. Member FDIC. 
    • Investment and Insurance Products   • Are NOT Deposits  • Are NOT FDIC Insured  • Are NOT Insured By Any Federal Government Agency  • Have NO Bank Guarantee  • May Go Down In Value  
    • Investing involves risks and you may incur a profit or a loss. Past performance cannot guarantee future results. This material is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any security or service. It is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. There is no assurance that any investment, financial or estate planning strategy will be successful.

    Stay Informed

    Subscribe

    Sign up here to receive insights designed to help you succeed.

    Sign Up Now

    WTU Newsletter Card
    WTU Newsletter Handler