Private Equity (PE) has seen a notable recovery after a period of downturn during 2022-2023, primarily due to macroeconomic challenges such as high inflation, rising interest rates, and geopolitical instability. However, Q4 2024 reflects a more optimistic outlook, driven by favorable financial conditions and a shift in deal-making strategies.
The PE Industry trends analysis for Q4 2024 draws insights from leading industry sources such as PitchBook, EY, Bain & Company, Deloitte, and HSBC, offering a comprehensive view of the current trends and what to expect moving into 2025.
In this in-depth PE trend analysis for Q4 2024, we cover:
• Recovery and Growth in Deal Volume and Value
• Investment Focus – Real Estate and Healthcare
• The Rise of Continuation Funds and Secondary Markets
• Dry Powder for Long-Term Bets in AI, Energy Transition and Supply Chain
• Sector Trends: Focus on Real Estate and Healthcare
• Regional Insights: US, Europe, and ASEAN Markets
• Final Take and Outlook for 2025
Recovery and Growth in Deal Volume and Value
According to PitchBook’s Private Equity Industry Outlook for 2024, the global Private Equity market is in a recovery phase, with deal volume and value showing signs of significant improvement after declines in 2022 and 2023. The shift can be attributed to a shift in macroeconomic volatility, lower interest rates, and tighter credit spreads, which have created a more favorable environment for Private Equity transactions.
Private Lenders – A Contributing Factor
The flexibility and speed of private credit lenders, in particular, have been a critical factor, as they have stepped in where traditional banks have pulled back, providing the necessary liquidity to facilitate deals.
Deal Volume and Value Growth – Increased Exits
One of the most notable indicators of this recovery has been the increase in exit activity, with exit values rising by 49% in 2024 compared to the previous year. This uptick is driven by large exits to corporate and public buyers, although corporate divestitures, IPOs, and continuation funds have emerged as popular alternative exit routes. Additionally, the increase in US Private Equity exits, which rose by 51% in value during the first nine months of 2024, further highlights the positive trend in deal-making. However, the exit landscape has been affected by high interest rates, with some discrepancies between the pricing expectations of buyers and sellers.
Investment Focus – Real Estate and Healthcare
In terms of investment activity, smaller growth equity deals have gained traction, as these carry lower risk and require less leverage, making them more attractive in volatile times. At the same time, the larger buyout transactions are expected to pick up as improved financing conditions enable Private Equity firms to pursue bigger deals. The shift toward larger buyouts has been evident in the surge in buyout investments across several key markets, particularly in sectors like real estate and healthcare.
The Rise of Continuation Funds and Secondary Markets
As part of the strategic adjustments made in response to market conditions, continuation funds have gained significant momentum. These funds, which allow Private Equity firms to extend the life of their portfolio companies by acquiring them from their own funds, are increasingly being used as a way to execute deals. According to A&O Shearman’s Global M&A Insights for Q4 2024, continuation funds have been responsible for 43% of the USD 72 billion in secondary deals completed in the first half of 2024.
This trend is largely driven by the growing maturity of funds raised between 2015 and 2018, often referred to as the "maturity wall." As these funds near their end dates, continuation funds provide an alternative route for firms to maintain their investments, enabling them to avoid the pressure to exit prematurely. The demand for secondaries is expected to continue rising as limited partners (LPs) seek liquidity due to weaker exits and slower distributions.
Dry Powder and Fundraising Dynamics
Despite the increased deal-making activity, Private Equity fundraising remains solid but unspectacular, with capital expected to surpass USD 1.2 trillion by the end of 2024 (HSBC). However, the number of funds closing continues to decline, signaling that larger, more established firms are dominating the fundraising landscape.
Small Niche-Funds on the Rise
Smaller, niche-focused funds are also thriving, particularly those that target specialized sectors or offer innovative strategies not easily executed by the larger funds.
Dry Powder for Long-Term Bets in AI, Energy Transition and Supply Chain
Interestingly, the accumulation of "dry powder"—capital that has been raised but not yet deployed—has reached nearly USD 4 trillion globally as of 2024. While this large pool of capital offers ample opportunities for future investments, its deployment has been slower than anticipated, as firms remain cautious in their asset selection due to high valuations and uncertain exit plans. The caution has led to slower deal activity, with many firms opting for a more measured approach to investments, focusing on long-term opportunities such as energy transition, AI, and supply chain shifts.
Sector Trends: Focus on Real Estate and Healthcare
Among the various sectors driving Private Equity activity, real estate continues to be a significant area of focus.
Real Estate: The real estate sector has already attracted US$7.2 billion in investments by November 2024, making it the second-best year for PE/VC investments in the sector (IVCA-EY Monthly PE/VC Roundup). Real estate, particularly logistics parks, data centers, and commercial properties, remains a key area of investment, fueled by the growing demand for e-commerce, warehousing, and high data consumption.
Healthcare: Similarly, the healthcare sector has seen strong growth, with Private Equity investments in healthcare surging to an estimated USD 115 billion in 2024, marking the second-highest deal value total on record.
The rise in large deals, especially in biopharma and healthcare services, is a significant driver of this growth, with North America continuing to dominate the global healthcare investment landscape.
As healthcare remains one of the most resilient sectors, Private Equity firms are expected to continue targeting healthcare investments in the coming years, particularly in biopharma, medtech, and healthcare services.
Regional Insights: US, Europe, and ASEAN Markets
US Market Optimism
The US market has seen a marked rebound in the second half of 2024, following a reduction in interest rates and the pro-deal policies of the current administration (A&O Shearman Global M&A Insights). The US remains one of the most favorable markets for Private Equity, particularly in light of the increased availability of financing and the optimistic outlook for IPO activity. Large M&A transactions are expected to increase as firms capitalize on favorable economic conditions.
European Market Trends - large buyouts and IPO
Europe has also seen a rise in Private Equity activity, particularly in large buyouts and IPOs. The European Central Bank’s interest rate cuts have made the region more attractive to investors, fostering optimism for increased deal flow (HSBC). However, some challenges remain, including slower internal rates of return (IRR) and the need for firms to engage in dividend recapitalizations to support their investments.
Emerging Markets and ASEAN Opportunities
The outlook for Private Equity in emerging markets, particularly in the ASEAN region, remains positive. U.S. megafunds are increasingly optimistic about investment opportunities in ASEAN countries such as Indonesia and Vietnam, particularly in sectors like healthcare, technology, and infrastructure (A&O Shearman). These markets offer significant growth potential, and Private Equity firms are expected to continue pursuing these high-growth opportunities in the coming year.
Final Take and Outlook for 2025
Looking ahead to 2025, Private Equity is expected to continue its growth trajectory, albeit with some caution due to macroeconomic factors such as geopolitical uncertainty and ongoing high interest rates. The continued accumulation of dry powder, along with an increase in continuation funds and secondary market activity, will likely play a significant role in shaping the market. As liquidity concerns ease, Private Equity firms are expected to shift their focus to larger buyouts and long-term opportunities in sectors like healthcare, energy transition, and technology.
Overall, Private Equity in Q4 2024 is marked by recovery, strategic adjustments, and optimism for the future. While challenges remain, particularly in exit markets, the industry is poised for continued growth as firms adapt to changing conditions and capitalize on new opportunities.
References
