Private equity (PE) firms are stepping into 2025 grappling with an unusual combination of challenges and opportunities, including a record backlog of portfolio exits, historic levels of dry powder, and lengthier holding periods. This insight comes from new research conducted by Lex Mundi, the world’s leading network of independent law firms.
While the first quarter of 2025 saw a notable number of U.S. private equity exits compared to the same period in 2024, escalating geopolitical disruptions and market volatility are prompting firms to gain earlier insights into counterparties, markets and regulators. This is especially critical for cross-border transactions, which face increased complexity.
Lex Mundi’s latest report, “Looking Ahead to Private Equity Exits in 2025,” presents an in-depth analysis of the sharp decline in PE deal activity over the past few years, with volumes plummeting from 8,700 deals in 2021 to just 3,000 in 2024. However, 2024 did offer a silver lining with a resurgence in average deal value. That said, intensifying trade disputes, as the United States seeks to address long-standing deficits, and tighter regulatory scrutiny have introduced new complexities for dealmakers.
The research includes insights from interviews with senior executives at major global private equity firms, including managing directors, directors and principals. These leaders acknowledged the increased challenges in navigating larger deals, which now face heightened regulatory and market scrutiny. Jenny Karlsson, director of global markets at Lex Mundi, explained, “It’s not just the regulatory hurdles. Firms are also grappling with shifts in tariff policies, supply chain challenges and restrictions on capital flows, forcing them to think multiple steps ahead to steer clear of complications.”
The study also sheds light on the growing backlog of portfolio exits. Private equity firms currently hold approximately 9,500 portfolio companies acquired since 2015, with half of these companies being held for more than 5.7 years. This marks a significant increase over pre-pandemic norms, where average holding periods were a full year shorter. Additionally, private equity dry powder hit an all-time high in 2024, reaching $2.62 trillion, a sharp jump from $1.85 trillion in 2018.
Eric Staal, vice president of global markets at Lex Mundi, highlighted a seemingly contradictory trend in how legal advice is being utilized to anticipate potential challenges in deal-making. “Whereas in some cases dealmakers are delaying legal engagement until they have confidence in the deal progressing, in others we’re seeing a shift toward ‘preliminary diligence’ as a way to get an early understanding of potential hurdles and scenario-plan for closing,” Staal said.
Karlsson added, “Agile project management techniques, borrowed from other disciplines, are transforming legal processes by not only keeping costs under control but also enabling smarter decision-making during high-stakes negotiations.” Staal further remarked that Lex Mundi’s portfolio analysis has shown predictive value across markets, with some companies already successfully exited using innovative deal structures.
Additional insights from the report include:
- Technology and software firms represent the largest share of PE portfolios, making up 40% of holdings.
- Over half of private equity-held companies (53%) are based in the United States, with 41% located in Europe.
- A pronounced shift toward mid-cap deals, ranging from $10 million to $1 billion, is emerging, while large-cap transactions remain a focus for top-tier firms.
Looking ahead, Lex Mundi’s findings suggest that 2025 holds potential for a wave of portfolio exits, particularly in mid-cap transactions and robust sectors like technology and financial services. For firms to seize these opportunities, agility and adaptation are essential. Embedding local insights and proactive legal strategies into their decision-making allows private equity firms to position themselves for success in a rapidly evolving market driven through shifting geopolitics and technological advancements.
For more insights, contact Eric Staal to request the full report, “Looking Ahead to Private Equity Exits in 2025.”