PE Pulse: key takeaways from Q4 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 lead our private equity insights group here at ey, and we've got a lot to talk about today with respect to what we're seeing in the market and the trends and themes that are driving activity right now. So join me for a conversation on today's deal, environment, last quarter's themes, and the areas of focus, and probably most importantly, 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: So, at the risk of stating the obvious, 2025, pretty wild year, you know, we came in with a lot of really high expectations for the M and A markets based primarily on declining interest rates and just a more conduc of regulatory environment. And that, of course, was pretty quickly upended by trade disputes and a, uh, sharp increase in geopolitical uncertainty that essentially just froze the markets for April and most of May. You know, I was talking to somebody the other day who described last year as cautious but active, and I think that's probably right. You know, we landed with just over 300 deals last year. That's up about 15% from last year. But the big story was really around the value of those deals, deals which climbed almost 60% from the prior year. Last year we saw 13 deals that went over the $10 billion mark. That's a record for the industry. And that concentration in larger deals was true not only in pe, but M and A more broadly. You know, when we look at global M and A, for example, would you have guessed that last year was the second highest value total ever? It was, but probably didn't feel like it because so much of that was concentrated in a small number of large deals. And so the market last year, it wasn't particularly broad. And as we move into the new year, that's something that we're going to be watching very closely is the degree to which more transactors get involved in a broader array of deals, this quarter's

Speaker A: key market themes and fund priorities.

Speaker B: So let's talk about exits, because that's been top of mind for everybody. What are we seeing? What's the impact? What's the outlook for that part of the market? Well, the big news is that we've seen strategics reemerge as buyers for PE assets, and that's lifting liquidity prospects for sponsors. Overall exits climbed about 20% by volume 50% by value versus last year. But when we look at trade sales in particular, so sales to corporates that climbed more than 75% by value. So I think where a lot of the boards have been very much on the sidelines last year and the last, let's say six months in particular, was when they really came off and started to get more active again. What's also interesting about the exit landscape is IPOs. Now that market's been defined by volatility, where the window would open, then it would shut again. We saw that in the beginning of the year, we saw it over the summer where there was a lot of excitement about a handful of IPOs. And we've seen it most recently over the last few months where a number of PE backed deals have come to market. They've done well. They're signaling that there is indeed appetite for large, high quality, quality PE backed assets. That's something investors are watching very closely. And in particular, as deployment skews towards these larger deals, the viability of that route remains very important. And exits matter, of course, because that's what drives fundraising. What's interesting about fundraising is that it had been fairly resilient for the last few years. Even as we were going through the exit drought last year, though, we really started to see those declines come through in earnest. Market gave way about 20%. However, I think based on what we're seeing in terms of liquidity, it's probably likely that we've hit the trough in this cycle. From a fundraising perspective. Most GPs, according to our survey, almost 60% expect that fundraising conditions will materially improve this year and another 30% think that they'll be about the same. And it's really a fairly small minority, less than 15% or so, that expect additional declines from here.

Speaker A: Outlook for the next six to 12 months.

Speaker B: So what do we think the outlook for 2026 looks like? Well, it's interesting. You know, we started off last year worrying about geopolitics and trade and then that sort of took a back burner to AI. Now we're back to worrying about geopolitics and trade again. But at some point it's entirely possible, probably even likely, that we'll circle back around to AI. And of course, you know, additional idiosyncratic events start to get layered in there as well. And so deal makers will be watching both those things very, very closely. But I say the overarching theme right now is cautious optimism where folks are going to move forward with deals both on a large end of the market, where we'll see more club deals and in particular more firms partnering up with the sovereigns to take down some of these larger targets. But I also think we see a broadening of the deal market and an expansion, uh, back into more of private equity's bread and butter private to private deals, which should help lift overall volumes. Right now, almost 80% of GPs say that they expect activity to increase over the next six months. And what's more important is that 72% say that they think exits are going to increase over the next six months. That's up from just 44% six months ago. So that really underscores the change in sentiment that we're seeing with respect to exits and liquidity and everything else. I think, moreover, the volatility that we've seen has opened up some pretty interesting opportunities for a lot of PE shops. It's hard to make a return when you're paying 15 times EBITDA. And so for that reason, I think GPs tell us that they expect the current vintage of deals to outperform some of the other recent vintages. Uh, about 45% of the firms say that they expect the deals they're doing now are going to outperform the ones that they did both in 21 and 22 when transaction activity was at an all time high, as well as the deals they did in 23 and 24 when the cost of capital was higher. Quality assets were a little harder to come by. I think that tracks with what we're seeing in the PE Portcos. You know, when we went out and we surveyed portfolio company CEOs in the fall, they were a lot more confident around profitability, around top line, around their competitive position. The health of the financing markets, Basically all the KPIs related to the health of the business than they were in the spring. That follows a pretty familiar pattern in P, which is when the market environment starts to get more challenging, opportunities start to get more interesting, and firms with the conviction to move forward to invest and more importantly, the operational capabilities to back up their theses, have the potential to make some really compelling investments. So I think the message from the market right now is pretty clear. Uncertainty is not going away. It remains a defining feature of the market. However, sentiment has shifted meaningfully over the last several months. Liquidity is improving. Confidence around exits is rebuilding. Dealmakers are increasingly willing to lean back in. And right now there are more opportunities that look structurally more attractive, I think, than what we've seen in some other recent vintages. We'll continue to track the market closely. We'll share what we see and as conditions evolve. As always, thanks for spending time with us and we will see you next quarter.

Speaker A: The Global PE Pulse podcast from EY back next quarter. For more on the latest market Trends, go to ey.com/forge/pe pulse.