Growth in global private equity deal flow may be slower than expected this year: Preqin

INVESTORS forecasting a quick uptake in global private equity (PE) activity this year may be disappointed, especially if the gap in pricing expectations between buyers and sellers persists, said a report by data platform Preqin.

“Dry powder continues to accumulate to record levels in absolute terms, which creates ready buyers on the demand side; however, many sellers remain reluctant to lower their valuation,” Paul Sinthunont, Preqin’s vice-president of research insights, said in a statement on Thursday (Feb 20).

“Our expectation for 2025 is that deal activity will build as monetary loosening continues, albeit now at a slower pace than expected,” he added.

Initial investor optimism for this year was spurred by a rebound in aggregate deal value in 2024, particularly after the US Federal Reserve started cutting interest rates in September. The three reductions last year lobbed off a full percentage point off the Fed fund rate.

Lower borrowing costs typically boost the cash flow and profitability at PE firms and their portfolio companies, increasing the potential for exits.

Despite that, and the higher than expected economic growth in North America, Preqin’s data shows that global PE deal volume fell to 1,434 in the fourth quarter of 2024, similar to the number in the second quarter of 2020.

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“Currently, the pickup in private equity dealmaking is yet to be seen,” the Preqin report said.

The platform’s November survey of 255 investors globally showed that 50 per cent of PE investors plan to commit more capital to the asset class this year. Forty-nine per cent said they expect PE to perform better this year.

That follows a more active 2024, when the aggregate PE deal value rose 7 per cent year on year to US$511.6 billion across the world.

Even with the more cautious tone, Preqin’s latest report said that higher multiples in public equities markets should provide a supportive benchmark for PE dealmaking. This could help bridge the valuation gap between buyers and sellers.

Turning to regions, Preqin said the US is likely to continue to drive the growth in assets under management by PE, while Europe’s valuation discount could be overstretched and provide opportunities for investors.

In Asia-Pacific, it added that investors could see “pockets of success” in Japan, but will be focused on China’s fiscal policy and its potential impact on the region’s growth.