The following is a guest post from Kade Thomas, CEO at Emory Oak Partners. Opinions are the author’s own.
There’s no denying that private equity had a tough time in 2024. But now that we’ve emerged from the fog, we, as an industry, cannot sit back and relax. There are countless opportunities for firms to reignite their dealmaking and deliver impressive ROI to investors, but they must strike now. Without swift action, they could push limited partners away from the sector.
Low deal activity has already left its mark. Last year, private equity assets under management fell for the first time in decades, decreasing by 2% compared to 2023 as LPs pulled back from committing new funds to the sector.
Investor sentiment cannot be left to deteriorate further.
There are two fundamental issues at play here. First, firms face a $3 trillion backlog of unsold deals, partly due to a challenging macroeconomic exit environment. Without clear exit avenues, some general partners have found themselves stuck in the deal cycle, unable to deliver returns to investors.
Second, private equity firms currently have tons of dry powder in store, to the tune of $500 billion. It’s not just the trillions of unsold deals that are holding firms back from returning cash to investors — it’s the billions of uncommitted funds, too.
The investment periods on these funds are ticking down, and if the drop in assets under management last year is anything to go by, LPs are losing patience. Firms must galvanize action, double down on dealmaking and commit funds to new, high-potential enterprises.
We were expecting to see the action get underway at the beginning of this year, with many predicting an M&A uptick following the Fed’s successive rate cuts in 2024. But while a dealmaking rebound at the end of last year suggested there were good things to come, the first few months of 2025 have left a lot to be desired. In February, for example, deal volumes between $1-$100 billion were down by 7% on the previous year.
High-growth opportunities
Yet, while some PE firms might be deterred by economic headwinds, I would argue that there are still fruitful deals to be done. Firms are just looking in the wrong places.
For years, many have gravitated toward the glamour and hype of industries like technology and financial services, neglecting the companies crucial to Americans’ everyday lives.
These businesses, largely operating across commercial and residential services, real estate and oil and gas, are high-growth opportunities that PE firms can unlock with the technological know-how they stereotypically lack.
Of course, economic hurdles pose challenges for all sectors, but there’s no doubt that some are more sheltered than others. Those such as utilities, repair and maintenance are deeply embedded, reliable sectors that firms can supercharge with operational know-how, expert management and technology.
By bringing marketing and branding expertise, digital skills and technologically enabled sales tools to these under-appreciated sectors, PE firms can jump ahead of the competition and make a real impact, not just on ROI, but also on portfolio companies and their customers.
I’ve seen firsthand how driving long-term, organic growth across these historically neglected industries can maximize returns. Their strong potential proves that our sector does have options amid this challenging period.
Given the $3 trillion stuck in aging deals, our industry cannot afford to delay dealmaking. Firms must seek out opportunities to unload capital, drive portfolio growth and prove PE’s potential to their investors.
True, there are multiple factors at play, and there’s no denying that firms, especially the industry titans, face complex difficulties that can’t be waved away with a magic wand. That said, without swift action, the LP retreat could deepen, and I don’t need to spell out the tough challenges that would bring.
We all know that private equity has the potential to take businesses to new heights, providing the resources and expertise they need to reach new customers and maximize revenues. It can drive sustainable growth that secures sky-high ROI for LPs, but firms can’t take that fact for granted.
PEs must reignite their dealmaking, get creative and turn to new industries. We can still realize the promised M&A spike — we just need to think outside the box.
