Lincoln International CEO Rob Brown shares perspective on market conditions and what to anticipate for dealmaking in 2025.

The Table is Set for a Healthy M&A Appetite

After years of more muted exit activity, with hold periods currently sitting at 5.8 years after being extended to a record high 7.1 years last year, PE sellers appear ready to bring their assets to market. In a survey of 851 PE professionals who attended Lincoln’s recent Private Capital Markets Conference, 57.5% said they intend to launch at least one sell-side process in Q1 2025, with 31.4% planning two or more. Though the exit dam appears set to break, will valuations cooperate?

The answer is a bit more nuanced.

According to the Q3 Lincoln Private Market Index, the only index that tracks changes in the enterprise value of U.S. privately held companies, over 60% of portfolio companies are growing, illustrating resiliency despite a challenging macroeconomic environment. However, 55% of private companies acquired between 2019 and 2023 have seen their leverage increase, meaning that seller’s concerns around achieving an acceptable valuation will likely persist into next year unless growth improves.

Against this backdrop, the recent rate cuts from central banks around the world have materially lowered the cost of capital over the last two months. With more cuts likely in December, the financing picture for buyers continues to look good.

How We’ll See the Rebound Unfold

The pick-up in activity will begin as PE addresses its inventory and continues to sell its highest quality assets in earnest. This will likely spur increased competition between PE and strategic buyers, driving up valuations and benefiting sellers. However, companies with spotty performance or those serving end markets with more risk are likely to continue to dip their toe in the water at a slower pace. As portfolio companies continue to focus on operational improvements and averaging multiples down through add-on acquisitions, we expect to see them come to market throughout the year, as opposed to a deluge of new deals in Q1.

On the buy-side, a “perfect storm” of favorable conditions, including a surplus of dry powder accumulated over recent years and a series of rate cuts implemented by central banks, has created a compelling environment for PE firms to deploy record levels of capital into high-potential investments.

Finally, having more than 60 global elections in the rearview—including the U.S. presidential election—will stabilize the market and provide investors with long-awaited clarity to move forward with transactions they had previously held off on due to uncertainty around the prevailing candidates.

Top Sectors that will Drive Deal Activity  

Certain sectors have already begun to stand out as key drivers of deal activity. Here are three that we’ll continue to watch in 2025.