PE Pulse: key takeaways from Q3 2025

Speaker A: The global PE Pulse Podcast from ey.

Speaker B: Hi, everyone, and welcome to the latest edition of the EY PE Pulse Podcast. My name is Pete Witte, and I'm part of the private equity practice here at EY. And over the next 10 minutes or so, we'll talk through some of the major trends in the private equity space and where things stand with respect to today's deal, environment, last quarter's themes, and some of the areas of focus for funds that we're seeing right now, as well as our outlook for the next few months. Thanks so much as always for joining. And let's get right into it.

Speaker A: This quarter's deals, environment, acquisitions, exits and financing.

Speaker B: Now, if you would have told me back in April that by October we'd be seeing the kind of activity that we are right now, including the largest announced LBO of all time, you know, I. I'm not sure I would have believed that there was just too much uncertainty. And yet here we are. Sponsors are moving forward with deals, and the market's largely shrugging its shoulders when it comes to all these concerns around inflationary pressures, for example, and some of the growth headwinds that we think are out there. So let's consider the numbers. 156 deals valued at $310 billion in Q3. That's up 21% by volume versus last quarter, more than 100% by value. On a year to date basis. That puts us on track for 46% increase by value versus last year. Right now, the public markets are hitting record highs. Inflation is moderating in some of the key markets. We're seeing reduced or at least stabilized interest rates and fairly resilient consumers. And while there's clearly concerns, uh, about the durability of all these tailwinds, for the moment at least, you, you know, they're contributing to a risk on stance for transactors who I think see a window of opportunity for deals right now, especially those that are larger and more transformational in nature. We're even seeing buyers and sellers come together on pricing to a degree that, you know, wasn't really happening six months ago, certainly a year ago. When we came into the year, the valuation gap was the number one thing that GPS said that was needed in order for activity to increase this year. Well, in our latest quarterly survey, two thirds now say that that gap has indeed narrowed, and that's been a strong tailwind for transactions as well. And obviously tariffs, you know, a major concern certainly earlier this year. But I think what we're seeing right now is that pe Firms and sellers are moving forward despite that uncertainty. They've been able to get comfortable with the risk through a combination of, you know, modeling out the impact and structuring it into deals. So we're hearing anecdotally, uh, for example, about the increased use of earnouts, where risk essentially gets pushed forward. Mac clauses with tariff exemptions, all ways of moving forward in an uncertain environment. And then we're also seeing some interesting and probably not unexpected sector rotations in where some of that capital is headed. So investments in the utilities and oil and gas spaces, for example, have more than doubled this year. Same thing with healthcare and financial services. And tech, meanwhile, has attracted far and away the most capital from PE over the last decade. But so far this year, deployment is up, uh, a pretty modest 5%. Now, whether that continues as we head into a cycle with lower interest rates, which we think is where we're headed, we'll have to see. But for the moment, right now, a strong focus on infrastructure, on health, on other essential services, this quarter's key market

Speaker A: themes and fund priorities.

Speaker B: Now, when we think about areas of focus, exits still far and away top of mind for everybody. And what's exciting here is that we're finally starting to see a bit of an unlock in that market. PE firms have been sitting on a lot of these companies for a lot longer than they'd expected. And with more than 30,000 companies under PE ownership right now, that pressure continues to build. So a year ago, for example, when we asked folks how much pressure they were getting from their LPs around exits, a majority, about three quarters, said it was between a, uh, five and a seven. Today, it's between a six and an eight. Right. So that pressure hasn't gone away at all. It's actually increased a bit from where we were a year ago. Fortunately, we're seeing more deals here. $470 billion worth of exits so far this year versus 340 billion at this time last year. Right. So an increase of 40% by value. Last quarter, we talked about how firms said that they were more willing to take a little bit of a haircut on valuations relative to their original underwriting. And that's clearly, I think, helping to drive a lot of this activity that we're seeing. And that'll certainly help from a, ah, fundraising perspective as well. Right now we're on track for about a 25% decline versus last year's fundraising totals. So as we start to see more exits, that, of course, helps the outlook there for that for next year. The other Thing that's going to help the outlook from a fundraising perspective is retail. Now, in the U.S. the administration just signed an order that allows PE and other private investments into 401 s. Those plans hold about $9 trillion in assets. And our back of the napkin math estimates that that could represent another 500 to $600 billion of capital flows into private equity funds. And we wanted to see how widespread some of that interest was on the part of gps. And so we asked them about it in our latest survey. Now, this is really interesting because when we survey gps, we talk to a lot of the mega firms, but, but we also talk to a lot of shops in the middle market as well. And so I was really surprised at the consensus here. 90%, 90% of firms say that they're at least somewhat interested in developing products for these kinds of vehicles. Guys, that's even half true. It means that there's a lot of funds out there that could be pursuing this market over the next few years. That's way more than I personally expected. But I think it just really underscores the attractiveness of these retail channels. Now, this isn't something that's going to happen, uh, overnight. First and foremost, plan sponsors, the ones running the 401ks, they have to get more comfortable than they are today with private investments. Regulatory clarity is needed. The structures need to be codified. All of that has to happen. But when we look out five years from now, clearly a strong direction of

Speaker A: travel outlook for the next six to 12 months.

Speaker B: Now let's talk about our outlook. Clearly, still a lot of uncertainty out there, but transactors are finding ways to move forward. Regardless, the markets moved on from the opportunistic approach that we started the year with to much more of a risk gone type of stance. Right now, 3/4 of GPs say the acquisitions will increase over the next six months. That's up 7 percentage points from when we asked a few months back. What's more exciting is that firms are more optimistic about exits than they've been in a long time. Right now, 61% say they expect exits to increase over the next six months. Now, ah, that might not sound like a super majority, but that's the highest level that we've seen since we started polling GPS a couple of years ago. Furthermore, a lot of firms also plan to accelerate some of their hiring plans in some key areas. According to our survey, 45% of GPs say they expect to hire more investment professionals than usual over the next few months, and about half say they're going to hire more specialists than usual in areas like digital transformation and data science. So the bottom line here While risk hasn't gone away, we're seeing that sponsors are finding ways to move forward and transact in the absence of absolute certainty. One of my colleagues recently remarked that resilience and agility are now the real currencies of growth, and I think that's probably nowhere more true than it is in private equity. That willingness to act decisively even with all the uncertainty out there is what's going to let PE close out the year on a pretty strong note. That's all for this quarter, and thanks

Speaker A: again for joining the Global PE Pulse podcast from EY back next quarter. For more on the latest market Trends, go to ey.compePulse.