Following a period of geopolitical and economic turbulence, private equity is poised for a strong resurgence in 2025, according to Alasdair Outhwaite, National Head of Private Equity at DWF.
Private equity activity has experienced significant fluctuations over the last five years. The Covid-19 pandemic initially led many to expect a period of dormancy, but by the summer of 2020, deal activity surged. However, a combination of conflicts in Ukraine and the Middle East, rising inflation, and interest rate hikes, meant activity again slowed towards the end of 2022 and into 2023.
With UK and US elections ushering in new leaders and inflation stabilising, Outhwaite predicts how 2025 could see a renewed surge of activity. “I’m confident that over the next six-to-12 months, we will see buyer offers align with seller expectations, driving a significant increase in transactions,” Outhwaite says
Key drivers of growth
Several factors are set to fuel this private equity revival. First, the stabilisation of the political and economic landscape will provide much-needed confidence. Second, private equity houses are sitting on substantial amounts of capital that they need to deploy. Thirdly, there are a number of assets that have been held by private equity since the boom of H2 2020 and 2021 that are maturing and coming to market,” Outhwaite explains.
Across the UK, London continues to be the first responder to economic trends, but regional markets, particularly the Northwest, are expected to follow suit.
In terms of sectors, technology and professional services are emerging as key targets. “We’ve seen a lot of activity in financial services and professional services, including transactions involving law firms and accountancy firms. There has been significant consolidation in these markets, many of which we have advised on, and we expect this to continue,” Outhwaite explains
Trends reshaping Private Equity
While traditional deal structures remain, there have been noticeable shifts in market practices. “Ten years ago, warranty and indemnity (W&I) insurance was relatively uncommon; now, it’s standard in almost every transaction we handle.”
Outhwaite explains that the relatively modest and stable cost of premiums, the simplicity of implementing these products— particularly when strong relationships with brokers have been established—and the clear expectation of W&I in any on-market, sell-side-led deal where competition for assets persists, have all contributed to the standardisation of these products.
Similarly, leveraged transactions, where debt is introduced at the point of acquisition, are becoming less frequent. “Private equity funds are increasingly underwriting entire deals with equity and then refinancing post-completion,” he highlights. All parties benefit from the separation of these work streams, enabling clients and advisors to focus on the M&A and equity elements and then dealing with third party financing in a measured way, post-completion.
Another important trend is the growing focus on ESG, as it is now an integral part of fundraising and investment decisions. Outhwaite explains that private equity clients place significant importance on ESG elements, not just from a compliance perspective but as a value driver. It remains to be seen if this will continue to be the case in light of the changing political landscape.
Artificial intelligence (AI) is also rapidly transforming the private equity landscape. According to Outhwaite, “AI is moving so quickly that it’s almost dangerous to make predictions. We use AI within our internal processes at DWF, and private equity firms are increasingly leveraging it to assess bids, conduct due diligence, and model investment scenarios”.
Yet, he warns against an over-reliance on technology. “While AI is undoubtedly the biggest and fastest moving area for driving efficiencies, emotional intelligence remains critical to any successful partnership. The most successful investments will be those that understand and engage effectively with management teams, not just those with the best algorithms.”
Challenges on the horizon
Despite the optimistic outlook, challenges remain. The past decade has seen constant disruption, from Brexit to the pandemic, and from political instability to inflationary pressures.
“Every time the market starts to recover, another crisis emerges. Hopefully, 2025 will bring a period of stability that allows private equity to operate with more confidence,” he says.
Another challenge is increasing regulation across all sectors and in particular in professional services. “All professional services firms are subject to stringent regulatory oversight, which can sometimes complicate private equity investments,” Outhwaite explains.
Potential further increases in capital gains tax could drive a wave of fresh deals, Outhwaite says. “We’ve already seen a small increase in capital gains tax, and I suspect further rises could be on the horizon,” he notes. This may push some business owners to expedite exits before any new or anticipated tax changes take effect driving an increase in deal volumes
What’s next?
Outhwaite remains bullish on the prospects for private equity this year and beyond: “Assuming no major geopolitical shocks, I expect a strong increase in activity across investments, consolidations, and particularly exits over the next 12 months.”
Regarding exits, Outhwaite anticipates a significant uptick. “We have already completed a number of sizable exits this year and are instructed on multiple further sale mandates which are set to complete in H1 2025.We’re already seeing strong pipeline activity for H2 as well. With a more stable economic and political outlook, maturing assets and more realistic price expectations from sellers, I expect a very busy year ahead.”
Private equity is entering a new phase, characterised by stability, renewed deal flow, and evolving market dynamics. While challenges such as regulatory pressures and taxation remain, the overall outlook is positive. “Private equity thrives on certainty and confidence. If 2025 delivers the stability we hope for, we’re in for a very active and exciting year,” Outhwaite concludes.
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