After years of frozen activity, private equity firms are finally seeing renewed deal flow…
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| Eager to know more? Keep reading below! After years of frozen activity, private equity firms are finally seeing renewed deal flow… The U.S. economy is seeing two conflicting trends converge. Mergers and acquisitions are seeing renewed activity, with this year shaping up to be one of the most active years for deals since 2021. This renewed deal flow is being spurred on by improved credit conditions, leading to rising corporate confidence. Meanwhile, private equity (PE), which has stayed relatively dormant for nearly two years as many firms have been unable to sell the companies they’ve acquired. As a result, distributions—the money given to PE investors—fell to their lowest levels since the pandemic. This means whether they like it or not, PE firms are under pressure to sell their companies regardless of the price. This pressure is now what’s thawing the once-frozen PE market. While these trends may seem unrelated and distinct at first glance, they’re starting to converge… and it reveals a lot about America’s current economy.
As mentioned before, PE firms haven’t been able to sell their acquisitions since 2021. It’s because high interest rates made it difficult for these firms to operate. PE firms typically buy companies with debt to increase returns, but with interest rates soaring to as high as 4.5% this year, those types of deals became a lot less lucrative. Higher debt made it harder to justify new acquisitions and even more challenging to find buyers for the companies PE firms already held. However, this dealmaking freeze is now about to end. Blackstone, one of PE’s biggest players, is on track to sell over USD 30 billion worth of companies in its portfolio—more than any time since the 2021 dealmaking boom. The PE firm’s president even went as far as saying last month that the “deal damn is breaking.” However, not every player in the PE space is fortunate. Carlyle, another PE company just reported its weakest exit quarter since 2020, with only USD 2.3 billion in realized proceeds. Speaking of industry-wide distributions, these only totaled less than USD 52 billion in the second quarter of 2025, its lowest level since the first and second quarters of 2020.
With distributions at low levels, investors aren’t happy since this indicates PE firms have no way of raising money for new investments. Carlyle seems to understand this. It knows its investors want to cash in on their investments. That’s why it announced plans of USD 5 billion more in expected sales to close 2025. With initial public offerings still being hit-or-miss, PE firms are turning to strategic buyers—firms in the same industry that are looking to fold smaller businesses into existing operations. According to Professor Joel Litman , Chairman and CEO of Valens Research and Chief Investment Officer of Altimetry Financial Research, strategic buyers have all the leverage right now, forcing PE firms to accept low prices. … and while this may be disadvantageous for fund managers of PE firms, it’s beneficial for the companies doing the buying. What’s more? Professor Litman says it’s great for the economy at large. It’s because all of those discounted PE deals are helping boost merger activity even further—making it easier for deals to create value as they tend to enhance earnings. So… what do these trends say about the economy? Professor Litman emphasized that renewed dealmaking activity doesn’t happen in a weak economy and neither does discounted sell-offs in the PE industry. Said another way, cheap deals are good for everyone outside of the PE industry. This means it’s a win for shareholders and is a tailwind for the broader economy, as cheap PE deals will help drive earnings and the rest of the market higher. Hope you’ve found this week’s insights interesting and helpful. Stay tuned for next Wednesday’s The Independent Investor! The world of investing is often defined by what people don’t see coming. Learn more about why Apple’s China problem is worse than it seems in next week’s article! |
Miles Everson
CEO of MBO Partners and former Global Advisory and Consulting CEO at PwC, Everson has worked with many of the world's largest and most prominent organizations, specializing in executive management. He helps companies balance growth, reduce risk, maximize return, and excel in strategic business priorities.
He is a sought-after public speaker and contributor and has been a case study for success from Harvard Business School.
Everson is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and Minnesota Society of Certified Public Accountants. He graduated from St. Cloud State University with a B.S. in Accounting.
