The state of private equity: Deals surge; everything else sags

While the PE market has adjusted to the prospect of tariffs and their likely impact on growth, the industry has seemingly resigned itself to a year that will largely reflect 2024. According to the PitchBook Q2 2025 US PE Breakdown, the surge of exit activity necessary to generate widespread revival of the PE market would require “an alignment of variables that feels aspirational.” Rather, persistent uncertainty and a continued slump in deal and exit activity appear to be “a more likely trajectory,” disappointing those who hoped for a widespread recovery at the start of the year.

Although the figures for Q2 look fairly strong, they reflect two Thoma Bravo funds that closed on a combined $32.4 billion, once again indicating a flight to quality. As Scott Voss, managing director, HarbourVest Partners, noted in our recent report with Transacted, “In the LP world, there is a bit of a consolidation mindset, a mindset focused on core managers. Uncertainty reinforces that.” With exit activity remaining in the doldrums, fundraising seems likely to continue its lackadaisical performance. Through H1 2025, 146 PE funds have closed on a total of $149 billion. Annualizing these data puts performance well below 2024's totals of 463 funds that closed on $333.4 billion.

Thanks to four megafunds—Thoma Bravo’s two vehicles and two others, Atlas Holdings’ fifth fund, and Linden Capital’s sixth—funds in excess of $5 billion dominated H1’s fundraising activity. Buyout funds overall (in excess of $1 billion) made up roughly 75% of H1’s capital. Although a number of other megafunds are in the market, they seem unlikely to close until 2026. Middle market activity slumped to 40.2% of H1’s total fundraising activity, with 74 funds raising $59.9 billion. This figure falls well short of the 54.9% five-year average.

Once again, clarity with respect to economic policy, tariffs, inflation, and Fed rate cuts will help LPs and GPs determine the best way to navigate this new landscape. One of the impacts of this uncertainty is the amount of time firms are spending in the market as they seek to close a fund. Preqin puts the average time in the market for US PE firms in H1 2025 at 20 months, substantially below the 27 months reported for 2024 according to Ropes & Gray.

Q2’s PE exit count and value sharply reversed the performance it showed in Q1. Exit activity, 314 transactions for a total of $118.5 billion, showed a 46.4% drop in value and a 24.9% decrease in count, below even the pre-pandemic “old normal.” Nonetheless, Q1’s strong performance seems likely to push the industry over 2024’s level, even excluding the past quarter’s standout transaction, the $58.7 billion listing of Venture Global LNG. (H1’s exit value exceeds 2024 by 69.3% when Venture Global is omitted and by 104.6% when it’s included).

Once again, exit count trails exit value as sponsors focus on selling their highest-quality assets. The current inventory of U.S. PE portfolio companies has now reached a level that will take nine years to clear (8.5 years at H1 2025’s activity level). PitchBook analysts observe, “Improvement in exit markets must be sustained and expanded to lesser-quality assets so that the PE industry can effectively wind down its inventory of assets.” The uncertainty of 2025’s outlook seems unlikely to allow the industry to speed up its exit activity.

PitchBook analysis also shows that median hold times continue to be a problem. The hold time of exited companies has fallen to 6.0 years through H1 2025, down from the peak of seven years in 2023 but above the pre-pandemic level of 5.2 years. Portfolio companies, worryingly, have a hold time of 3.8 years, the highest since 2011. PE firms need to start exiting these older companies to get the industry moving again.

The lack of transparency about trade policy, tariffs, input costs, and output pricing has created new headwinds for PE exits. Continuation vehicle (CV) activity in H1 2025 is on pace to exceed 2024’s record of 127 CVs. GPs are developing a new strategy: the continuation vehicle for an asset already in a continuation vehicle, or CV-squared, as discussed in Emily’s Lai’s recent article. Lai notes that exits for LPs who have rolled their positions over into CVs are proving elusive, especially if the company has grown to the point where the only possible exit is a public listing.

While deal activity slowed in Q2, it still exceeded last year’s performance over the same period. Total deal value, though, dropped 18.4% from Q1 to $227.7 billion, but a 10.7% boost year-on-year. For H1 2025, deal value hit $506.7 billion, up 28.7% compared to the same period last year, and 4,429 deals, a boost of 8.2%. Megadeals boosted the deal value.

Growth equity deals slowed slightly, but at 22.3% of Q2’s PE deal count, they still exceeded the five-year average of 19.2%. Their value only made up 8.3% of the overall total due to some large add-on transactions in the quarter. Add-ons climbed to make up 75.9% of total deals for Q2, significantly ahead of Q1, last year, and even the five-year average as sponsors sought scale to protect against uncertainty. Notable deals included Moss Adams’ combination with Baker Tilly to become the nation’s sixth-largest advisory CPA firm; Focus Partners Wealth’s acquisition of Churchill Management Group; and Hometown Food’s purchase of Chef Boyardee.

Dry powder continues to hold steady at above $1 trillion for its second year in a row. This trend is unlikely to persist, as deal activity is exceeding fundraising. Such a change would be positive, indicating that capital is finally being deployed.

Deal activity in H1 2025 was robust, but fundraising and exits remained mired in the uncertainty around trade, inflation, and geopolitical conflict. Without some degree of transparency and action on the liquidity front, LPs are unwilling to commit to long-lived, illiquid assets even though PE returns have finally edged into two-digit territory. The anticipatory glow of 2025 has fully worn off, and the best the PE industry seems to anticipate is a sideways shuffle, hoping for rate cuts and tariff postponements.