Private Equity: Industry Trends Q1 2025

Private equity activity in Q1 2025 unfolded within a market characterized by geopolitical volatility, evolving macroeconomic signals, and sector-specific disruption.

In this in-depth Private Equity Q1 2025 trend analysis, we cover:

1)    Key Findings
2)    PE Shifts Focus from Exits to Dealmaking
3)    Healthcare Returns to the PE Spotlight
4)    Aerospace & Defense Gains Steam
5)    AI Becomes Core to PE Deal Strategy
6)    India Emerges as a Growth Engine for IPOs and Deal Volume
7)    Cautious Deployment Despite $1T in US Dry Powder
8)    European Policy Shifts Open New PE Playbooks
9)    IPO Returns Remain Uneven, Making PE Exits Less Predictable
10)   PE Doubles Down on Sustainability-Aligned Sectors
11)    Quality in Fundraising
12)    Secondaries Gain Traction
13)    Crowded Fundraising Higher Selectivity

1. Key Findings

Several interconnected themes emerged in Q1 2025. While the IPO market saw a modest global recovery led by the US and Indian markets, private equity firms shifted their strategic focus from exits to dealmaking.

Artificial Intelligence, defense investments, and healthcare transactions gained prominence amid shifting policy stances, particularly in the US and Europe.

Caution and high Dry Powder: Despite elevated dry powder levels, GPs approached deployment cautiously. Yet, some sectors like healthcare, AI, and defense offered compelling deal opportunities, prompting reallocation of capital and adjustments in portfolio strategy.

Tariff: The return of tariff threats under the new US administration and Germany’s fiscal pivot also altered investor sentiment and reshaped transatlantic capital flows.

AI, Defense, and Healthcare: Private equity shifted into a “wait-and-watch” mode on exits but grew aggressive in select buyouts, particularly where AI, defense, and healthcare intersected.

2. PE Shifts Focus from Exits to Dealmaking

The beginning of 2025 saw a reversal in PE strategy: exits initially expected to drive the year faced renewed resistance while dealmaking gained momentum.

Rising geopolitical risk and US policy uncertainty prompted valuation corrections, making acquisitions more attractive.
In Q1, publicly traded PE firms saw exits decline sharply from Q4 highs, while deal activity started picking up as evident with the Big Seven PE firms that increased capital deployment by only 2.9% YoY in Q4 2024, while exits surged 79% YoY, a trend that flipped entering Q1 2025.

Deals are now more favorable amid valuation resets, loosening regulatory friction, and motivated sellers.

3. Healthcare Returns to the PE Spotlight

Sycamore Partners' $23.7 billion take-private of Walgreens Boots Alliance marked the largest healthcare buyout since the financial crisis. This landmark deal underscores renewed PE focus on healthcare and retail, driven by expectations of a lighter-touch regulatory regime in the US.

The deal signals confidence in healthcare retail’s cash flows and scalability. It also reflects sector-wide anticipation of consolidation and operational efficiencies powered by AI and tech integration.

4. Aerospace & Defense Gains Steam

Geopolitical instability in the Middle east, the war in Ukraine, and America-first policies have led to a surge in global defense budgets, especially in Europe.

Over 3,400 private defense firms operate globally, most of them VC-backed. IPO interest is rising: 90+ companies are IPO candidates, with over 50% targeting US markets. Among the candidates, PE-backed companies enjoy higher median valuations.

Companies with dual-use technologies and cybersecurity offerings have gained renewed interest from contractors and government agencies.

5. AI Becomes Core to PE Deal Strategy, Not Just a Tech Play

Artificial Intelligence, especially generative AI, has become a central theme across sectors, not just in technology. JP Morgan reported that Deepseek’s AI cost breakthrough triggered the sharp repricing of major AI stocks. But for PE, lower AI development costs widened access for mid-market firms.

AI appeared in 40–50% of IPO filings in TMT, Financials, and Health/Life Sciences. GenAI enables operational improvement, data analytics, and product innovation in PE portfolio companies, especially in pharma, manufacturing, and fintech.

6. India Emerges as a Growth Engine for IPOs and Deal Volume

India recorded the strongest IPO activity in Health & Life Sciences since 2001, with an 11 IPO count in Q1 2025 and 62% YOY growth in the pipeline. It also drove Construction sector IPOs. For PE firms, this reinforces India as a high-growth market with increasing domestic capital participation and exit optionality.

India’s capital markets maturity and digital infrastructure support secondary exits and growth-stage funding. A favorable policy stance and robust consumption trends make it attractive for new PE entries.

7. Cautious Deployment Despite $1T in US Dry Powder

US private equity dry powder surpassed $1 trillion by late 2024, but deployment lagged. GPs deployed just 26.2% of their capital over the past year, compared to the historical norm of ~33%. This highlights a mismatch between capital availability and risk appetite.

Firms remain disciplined, favoring add-on acquisitions and mid-sized platforms over mega-deals, except in healthcare where there has been a gold-rush similar to 2020.

8. European Policy Shifts Open New PE Playbooks

Germany’s announcement of a $500 billion infrastructure fund and expanded defense spending has changed the game in Europe. While these moves will take time to materialize, PE firms are repositioning early to tap infrastructure-adjacent sectors, clean energy, and defense suppliers.

German bond yields jumped ~40bps, tightening spreads, and making European IG bonds less attractive.

PE interest in European mid-market firms has risen due to favorable fiscal signals and weaker Euro valuation.

9. IPO Returns Remain Uneven, Making PE Exits Less Predictable

While the global IPO market grew 20% YOY by value, return profiles were mixed. Only the US and China saw improved first-day and current returns. Fewer than 50% of US IPOs delivered positive returns, underscoring investor selectivity and PE caution.

This reduces the attractiveness of IPOs as an exit strategy for now.

Valuation resets and post-listing dips suggest that traditional profitability metrics aren’t enough. Investor sentiment now favors universally acceptable positive narrative and scalability.

10. PE Doubles Down on Sustainability-Aligned Sectors

Sustainability is no longer a side theme. It's becoming a core driver of private equity strategy. In Q1 2025, Earth Capital reported that sustainable PE investments accounted for a substantial share of total deal volume, with the U.S. leading at $15.7 billion across 188 deals, followed by Canada ($8.2B), Asia ($7.2B), and Europe ($5.5B).

The strongest activity was concentrated in Pharmaceuticals and Biotechnology ($8.36B in 133 deals), Healthcare Technology Systems ($5.66B in 45 deals), and Energy Services ($3.96B in 18 deals). This sectoral alignment signals that GPs are prioritizing long-term societal impact and climate resilience alongside financial returns.

Deals like Constellation Energy’s $16.4B acquisition of Calpine and Johnson & Johnson’s $14.6B purchase of Intra-Cellular Therapies show a growing appetite for companies aligned with decarbonization, health innovation, and infrastructure transition.

11. Quality in Fundraising

In Q1 2025, private equity fundraising fell for the third consecutive year - down 24% to $1.1 trillion even as deal and exit activity improved. The message from LPs is clear: capital is available, but only for funds that demonstrate clear value creation strategies, operational discipline, and differentiated positioning.

Bain & Company highlights that 78% of funds closed at or above target, but 23% failed to meet targets, indicating widening dispersion between the top and lower-tier managers.

Fundraising timelines remain extended at 18 months on average, reinforcing the patience required to win institutional commitments. Distributions to LPs also dropped to just 11% of NAV, the lowest in a decade, heightening scrutiny on managers to return capital.

12. Secondaries Gain Traction

In a slower fundraising environment, secondaries are becoming a standout strategy.

In Q1 2025, they made up 26% of all capital raised, the highest year-over-year increase.

Ardian’s $30 billion close - the largest ever alongside ICG’s $11 billion fund, shows growing LP interest in liquidity solutions.

With fundraising timelines stretching to an average of 18 months, secondaries are now critical tools for both GPs and LPs to rebalance portfolios and access capital more flexibly.

13. Crowded Fundraising Higher Selectivity

As of April 2025, nearly 6,000 PE funds are in the market, seeking a total of $1.1 trillion. North America leads with $465.9 billion in targeted capital, followed by Asia-Pacific at $112.6 billion and Europe at $106.7 billion.

Despite the volume, 78% of funds closed at or above target, showing that capital is consolidating around top performers.
For emerging fund managers, standing out now requires sharper strategy, regional clarity, and a strong track record.

Conclusion: PE in Q1 2025: Navigating the Fog with Targeted Precision

The first quarter of 2025 was defined by strategic recalibration.

GPs are adapting quickly, pivoting to healthcare, AI-enabled platforms, and defense while selectively deploying capital in markets like India and sectors backed by fiscal stimulus.

In the quarters ahead, the interplay between macro risks and micro sector narratives will likely shape deployment pacing, portfolio rebalancing, and the timing of exits.

References