Here are key trends we saw in 2024, and what fund managers and others can expect in the year ahead. 

In 2024, private equity rebounded from the lows of the 2023 mergers and acquisitions (M&A) market, growing nearly 13% year-to-date, with the back half of the year shaping up to be strong due to the recent interest rate cuts. This improved environment, combined with the need for increased exit volume and the deployment of $2.62 trillion in dry powder—cash reserves for future investments—will likely drive increased M&A growth, particularly around new platforms and exits compared to the past few years. The potential for additional interest rate cuts in 2025 and a less restrictive anti-trust oversight may accelerate growth in the private equity sector as well.   

We also expect the focus on value creation to continue into 2025, particularly around artificial intelligence (AI) and machine learning, top-line and margin gains, and operational improvements. And we foresee many new platform deals will lead to an increased need to stand up new finance and sales organizations, driving further demand.  

As the year comes to a close, here are the trends we saw in 2024, what we expect to see in 2025, and where fund managers and others should focus their efforts in the near future.   

Private Equity Trends in 2024: The Year in Review
Trends Shaping Private Equity in 2025
Frequently Asked Questions 

Three main trends shaped private equity this year: a steady rebound in mergers and acquisitions, longer fundraising process due to the slow pace of limited partner distributions, and greater hands-on value creation emphasis around top-line and margin improvement activities. With exit hold periods still over 5 years, these trends meant funds were laser-focused on areas that would speed up portfolio company exits and justify current exit multiples. 

Slowly Improving M&A Market Focused On Add-Ons:

There was a notable uptick in M&A in 2024, but PE firms proceed with greater caution due to high interest rates, driving a greater emphasis on add-on acquisitions. According to a Q3 PE report from PitchBook, a provider of global financial data, research, and insights, 76% of deals were add-ons as firms sought to grow recent platforms or close market and product gaps for holdings ahead of an upcoming exit process. Platform acquisition activity also improved toward the end of the year due to lower interest rates and increased certainty in the market post-election. 

Slow Fundraising Environment Due to Significant Exit Backlog:

Private equity has been on a fundraising slump during the second half of 2024. According to Preqin, a privately held investment data company, the number of new funds dropped by 24% to 189 from Q2 to Q3, and aggregate capital raised was down 22% to $135 billion. However, a recent survey of large limited partners by Private Equity International — a publication that focuses on investors and fund managers — shows optimism for better fundraising in 2025. Reasons include more stable interest rates and the ability of PE firms to drive mechanisms for distributions, including continuation funds, general partner-led secondaries, and minority recapitalizations.  

Greater Hands-On Value Creation Involvement at Portfolio Companies:

Given the weaker economy and the need to improve top-line and margin growth ahead of exits, operating partners took a greater role to identify and drive value top-line and margin improvement. This also from a desire by limited partners to see more differentiated value creation from PE funds during the fundraising process. Many PE Firms increasingly modeled worst-case scenarios during due diligence and adopted proactive strategies to reduce potential value creation risks.  

Moving into 2025, the need to accelerate exits and capital deployment will shape the PE industry. Many key trends will continue. Among them: the increased importance of the secondaries market in driving a focus on top-line value creation and emphasis on operational due diligence, and the office of chief financial officer (CFO) standing up new platforms, as well as targeted investments in AI and machine learning. An improved IPO market in the second half of 2025 will also drive the need for a ramp up in IPO readiness.  

Tech-Driven Value Creation to Enable Top-Line Growth:

In 2025, private equity firms will prioritize creating differentiated value for their investors by improving financial and sales processes and analytics, or by assessing their current product and service hierarchy to identify key gaps given the rapid advancement of Generative AI and Cloud. This focus will help portfolio companies speed up top-line go to market product and service initiatives that will benefit their exit stories.

MorganFranklin Consulting’s 2025 Prediction: Many private equity firms will realize that there are gaps in their management teams as well as their underlying capabilities, particularly around top-line, product, and finance functions. This realization will drive an emphasis on re-designing go to market strategies and product roadmap to better fit the market needs. In tandem, many PE firms will implement new enterprise resource planning systems (ERPs) and financial analytics tools along with revised processes to make these changes happen.   

An Emphasis on Operational Due Diligence and the Office of the CFO Standing-Up New Platforms

In 2024, as multiples remained flat, investors started to adjust how they approach valuation. Coming off the inflated valuations of 2021, investors learned that it’s less reliable to lean on an industry multiple as a standard. Instead, they’ve leaned further into value creation early in the hold to drive valuation. A greater focus on understanding issues upfront has led to the more hands-on operational approach we outlined and more thorough operational due diligence. Setting up a scalable office of the CFO helps operations by allowing operators to start measuring value creation from the beginning, giving credence to valuations driven by margin gains. 

MorganFranklin Consulting’s 2025 Prediction: Private equity firms will spend significant time and resources on understanding operational issues at the outset of an investment and standing up a strong office of the CFO to measure the effect of value creation strategies. Especially given the current macroeconomic environment and uncertainty around tariffs, private equity firms will place special focus on understanding scalability via the maturity of go-to-market strategy and channels, supply chain operations, and manufacturing. 

Focus on Top-Line and Finance Specific AI and Machine Learning Use Cases

AI and machine learning continue to set companies apart, especially in technology and high-tech sectors like industrials and aerospace and defense. Fund managers are actively pursuing more deals in these industries and will keep acquiring and preparing similar assets throughout 2025.  

While it’s still early to measure the full return on investment in AI, CFOs are already seeing positive results in accounting and finance. Generative AI spending is projected to grow significantly, increasing its market share from 8% in 2023 to 35% in 2027, according to CFO Dive, a financial news provider. In fact, nearly 100% of business leaders surveyed said they planned to invest in generative AI over the next 12 months, with 43% of them expecting to invest $100 million or more.  

MorganFranklin Consulting’s 2025 Prediction: We expect larger portfolio companies with the resources and technology in place to continue benefiting from AI and machine learning investments. But outside of enterprise software, we don’t see a strong ROI from AI in tech. As talent shortages push companies to re-evaluate their approach to staffing, the highest return on investment for AI and machine learning will continue to be in finance, fueling top-line revenue growth. Meanwhile, middle-market funds will focus on upgrading outdated enterprise resource planning systems and data processes in 2025 to prepare for future growth. 

Dual-Track Exit Preparation Driven by Signs of Improvement in the IPO Market:

The IPO market is showing signs of improvement, helping reduce the backlog of companies waiting to go public. Some analysts estimate that between 30% and 50% of companies in the IPO backlog are venture capital (VC) or PE-backed in 2025. This trend is especially strong among upper-middle-market and large firms, with private equity-backed companies renewing their interest in public markets. Notable examples include KinderCare Learning, backed by Partners Group, and StandardAero, backed by Carlyle Group, both of which have completed IPO plans. This resurgence signals positive momentum for the market’s recovery.  

MorganFranklin Consulting’s 2025 Prediction: With the IPO market gaining momentum, we will see more companies pursue a dual-track process, preparing for going public or selling off. While it may seem like more work for operators upfront, this level of preparedness gives a better chance of achieving the best-case valuation. We also expect to see the majority of exits in 2025 in enterprise technology and other business-to-business (B2B) tech-enabled companies, rather than business-to-consumer (B2C) ones.  

Real Partners, Real Solutions:

The private equity industry’s success in 2025 will depend on its ability to adapt to changing conditions while staying focused on opportunities to create value long-term. One of the most effective ways to do so: Collaborating with specialized partners. They offer critical insights and support for complex transactions and value creation.  

To learn more, or to schedule a call with one of MorganFranklin Consulting’s private equity experts, contact us today.   

Frequently Asked Questions

Q: What were the key private equity trends in 2024?
A: 2024 saw a steady rebound in mergers and acquisitions, a slowdown in fundraising, and a more deliberate approach to value creation. Mergers and acquisitions activity increased by 13%, fueled in large part by lower interest rates and economic growth. Operating partners adopted rigorous due diligence and value creation strategies to accommodate longer term investments and changing market conditions. 

Q: What strategies should private equity firms prioritize in 2025?
A: In 2025, private equity firms should focus on enhancing value creation, strengthening operational due diligence, standing up robust finance functions, investing in AI and machine learning for top-line growth, and taking advantage of improving IPO market conditions. These strategies will help drive growth, manage risks, and capitalize on market opportunities for long-term success. 

Q: What role will AI and machine learning play in private equity in 2025?
A: AI and machine learning will continue to be key differentiators for private equity firms in 2025. Larger portfolio companies with established resources will continue to benefit from their AI investments, particularly in finance. Meanwhile, middle-market funds will focus on upgrading enterprise resource planning systems and data processes to prepare for future growth. Generative AI spending is projected to rise sharply, increasing its market share from 8% in 2023 to 35% by 2027, highlighting its growing importance across industries, especially within finance functions. 

 

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