Studies

Artificial intelligence has moved from experimentation to infrastructure in M&A. Dealmakers are increasingly relying on AI to source opportunities, analyze targets, and identify risks, but when it comes time to sign a deal, they still want a human holding the pen.

That tension sits at the center of The New Deal Team, a new report from Datasite and FT Longitude based on a March 2026 survey of 1,000 senior dealmakers across 27 countries. All respondents had lead decision-making responsibility on at least three transactions during the previous 24 months. Participants included professionals from private equity, corporate development, law, accounting, and advisory firms across the Americas, EMEA, and APAC regions. While 62% of respondents believe human-only decision-making is no longer defensible in complex transactions, 45% say the decision to proceed to signing should always remain exclusively human.

The survey shows AI is most deeply embedded in the most data-intensive phases of dealmaking. Due diligence leads adoption, with 50% of respondents reporting regular or fully embedded use and only 4% reporting no use at all. Sourcing and screening follow, with 43% reporting regular or embedded use and 96% either using or exploring AI in some capacity. Strategy and ideation, deal marketing, and deal preparation also showed meaningful adoption as firms increasingly use AI to accelerate analysis and workflow management.

As AI takes on more of the heavy lifting in M&A, human judgment becomes more valuable, not less.

Yet adoption drops sharply as transactions move toward closing. Thirty-one percent of respondents report no AI use at closing, and only 16% use it heavily. Board reporting and governance show similar patterns, with 27% reporting no AI use at all. When asked where responsibility should reside for proceeding to signing, 45% said the decision should be made entirely by humans, while another 33% favored a human decision informed by AI. Just 7% said they would proceed based on an AI recommendation without human review.

“AI can automate analysis, but it can’t own accountability,” said Rusty Wiley, president and CEO of Datasite. “As AI takes on more of the heavy lifting in M&A, human judgment becomes more valuable, not less. The firms that outperform will be those that combine the speed and scale of AI with the trust, experience and oversight that only people can provide.”

The data also indicates that advisors are moving faster than corporate acquirers and financial sponsors in embedding AI into transaction workflows. The largest gap appears in due diligence, where 53% of advisors report regular or fully embedded AI use compared with 45% of clients. If that trend continues, AI capabilities could increasingly become a source of differentiation among investment banks, accounting firms, consultants, and legal advisors competing for transaction mandates.

AI is becoming indispensable in dealmaking and investing, but adoption alone isn’t the advantage.

The findings also suggest AI is influencing transaction outcomes rather than simply improving efficiency. Twenty-four percent of respondents said AI helped them complete a transaction that otherwise would have been missed, while 43% said AI is already making better deal decisions than humans in certain situations. Two-thirds of respondents believe using AI across the deal lifecycle is an effective way to reduce transaction risk.

The impact is beginning to extend beyond deal execution and into firm operations. Twenty-six percent of respondents said they had delayed or canceled hiring for a role because AI could perform the work as effectively. Nearly half of respondents said they would accept AI input in dealmaking if it was 80% as accurate as a human, and 71% believe firms that fail to adopt AI today will struggle to compete within five years.

“AI is becoming indispensable in dealmaking and investing, but adoption alone isn’t the advantage,” said Raj Bakhru, general manager of Blueflame AI, a provider of AI-powered workflow and research tools for private equity and investment banking professionals that was acquired by Datasite in 2025. “The real challenge is ensuring AI outputs are accurate, secure and trusted. Strong governance, transparent workflows and human oversight are what determine whether AI creates value or introduces risk.”

The survey’s governance findings reinforce that view. Accuracy and security ranked as the two most important attributes dealmakers require from AI tools, cited by 71% and 70% of respondents, respectively. Human review and validation were identified as the leading mechanism for building trust in AI-generated outputs, followed by the use of purpose-built applications and deployment within secure environments.

As firms increasingly incorporate AI into sourcing, diligence, portfolio monitoring, and reporting processes, questions surrounding oversight, accountability, and fiduciary responsibility are moving beyond IT departments and into investment committees and boardrooms. Security and compliance concerns remain the largest barriers to broader adoption, cited by 44% of respondents, while 35% pointed to a lack of internal expertise.

The report ultimately suggests that AI is changing the nature of dealmaking rather than replacing dealmakers.

Regional differences were pronounced. Asia-Pacific respondents reported the highest levels of AI adoption across most phases of the deal process and were generally the most willing to delegate decision-making authority to AI. Europe, Middle East, and Africa respondents were the most cautious, particularly around security and regulatory concerns. Dealmakers in the Americas were the most concerned about competitive pressure, with 74% saying firms that fail to embrace AI today will struggle to compete within five years.

Looking toward 2030, respondents expect AI’s benefits to vary by stage of the deal process. In due diligence, the most commonly cited benefit is improved identification and mitigation of risks. In sourcing and screening, dealmakers expect AI to help manage a greater volume of opportunities. In strategy and ideation, respondents anticipate better decision-making, while users expect AI to improve board reporting and governance through faster access to more accurate information and insights.

The report ultimately suggests that AI is changing the nature of dealmaking rather than replacing dealmakers. As technology assumes more responsibility for sourcing, diligence, and transaction preparation, the skills that remain uniquely human—negotiation, relationship management, strategic judgment, assessing trust and intent, and accountability—become increasingly valuable.

For private equity firms, the more interesting question may no longer be whether AI will become part of the investment process, but how quickly AI proficiency becomes a baseline expectation. Virtual data rooms, CRM systems, and digital diligence tools were once differentiators before becoming standard infrastructure. The survey suggests AI may be following the same path, with the competitive advantage shifting from access to the technology to how effectively firms integrate it into their investment processes.

Minneapolis-headquartered Datasite, led by President and CEO Rusty Wiley, provides software used to manage information flow across private market transactions. Its product portfolio includes virtual data rooms, deal-sourcing platform Grata, agentic AI platform Blueflame AI, and governance software provider Sherpany.

The survey was conducted by FT Longitude, the research and thought leadership division of the Financial Times Group, on behalf of Datasite in March 2026.

Click HERE to download a copy of Datasite’s The New Deal Team.

Bain & Company’s just published Global Private Equity Report 2026 makes clear that while deal value improved, exit activity increased, and financing markets stabilized, the industry is operating under more measured conditions than those that defined the prior decade. Fundraising remains selective, distributions are rebuilding, and capital is concentrating among managers with demonstrated performance. This is less a slowdown than a maturation.

Transaction activity has returned with substance. Strategic buyers are active. Sponsors are exiting assets deliberately. While holding periods remain extended relative to earlier cycles, exit decisions increasingly reflect operational readiness and buyer alignment rather than market momentum.

When Sverica agreed to sell Defy Security last month to Booz Allen Hamilton, the transaction reflected business development and strategic logic more than opportunistic multiple expansion. Sverica grew the business by 3x without any add-on acquisitions. That type of exit underscores the industry’s core strength: building assets that attract high-quality buyers. Liquidity today is deliberate. If you build it they will come.

A central theme in Bain’s report is the evolving role of leverage and multiple expansion. For much of the previous decade, favorable credit markets amplified strong execution. Today, operating performance carries greater weight in determining outcomes. Sustained EBITDA growth, margin expansion, add-on integration, and pricing discipline are once again the primary drivers of returns. Firms that have institutionalized operating playbooks and sector specialization are well positioned in this environment. Operating execution is more visible — and more rewarded.

Fundraising trends reinforce this shift. Bain highlights capital concentration among established managers, and recent market activity supports that observation. Lindsay Goldberg’s $4.9 billion close of its sixth fund demonstrates that institutional capital continues to flow toward managers with consistent realization history and clear strategy. In a selective allocation environment, strong platforms are being validated.

Operating performance is no longer incremental upside. It is the return engine.

Limited partners are allocating capital with increased emphasis on realized performance, and DPI — distributions to paid-in capital, meaning the amount of cash returned to investors relative to what they have contributed — has regained prominence in portfolio construction decisions. During the years when unrealized gains accumulated rapidly, total value metrics often dominated allocation discussions. Today, actual cash returned is once again central to re-up decisions.

That shift strengthens alignment between GPs and LPs. It reinforces the foundational premise of private equity: capital must be returned, not merely marked higher.

At the portfolio level, sponsors are demonstrating patience where appropriate. Boyne Capital’s decision to extend its hold on Pilot Energy illustrates a willingness to continue compounding operational value rather than rushing to monetize into suboptimal conditions. That posture reflects confidence in the underlying business and a recognition that value creation does not operate on a fixed calendar. In prior cycles, strong financing markets sometimes accelerated exit timelines. Today, performance readiness governs timing more than market momentum.

In this market, exits favor preparation and performance over financial engineering.

The discipline phase also extends inside GP organizations. Management fee structures have moderated from peak levels, co-investment rights have expanded, and investors are negotiating terms with greater assertiveness. At the same time, firms are investing in operating benches, analytics infrastructure, compliance systems, and sector specialization. Internal cost structures are rising even as recurring revenue assumptions tighten.

Scale can mitigate some of that pressure, but scale without strategic clarity simply magnifies fixed expense. The operational rigor sponsors demand of portfolio companies increasingly applies within their own organizations. Institutionalization is no longer optional; it is structural.

Capital has not become scarce. It has become discerning.

The distribution cycle remains a focal point. While exit value improved in 2025, distributions have not yet normalized across vintages. Until they do, fundraising momentum will remain selective. Continuation vehicles and sponsor-to-sponsor transactions provide flexibility, but they do not replace consistent DPI as the foundation of capital formation.

Importantly, none of these developments signal contraction. They indicate refinement. Private equity expanded rapidly during an unusually accommodative decade. The current environment is clarifying which firms built durable operating capabilities and which benefited primarily from external tailwinds. Financial engineering is less dominant. Operational expertise carries greater influence. Capital is concentrating among managers with repeatable models. LP scrutiny reinforces alignment. Underwriting standards reflect experience rather than exuberance.

Collectively, these shifts describe a more resilient asset class. Private equity has always required discipline, judgment, and sustained effort. What distinguishes the current phase is not difficulty but transparency. Returns are driven more directly by underwriting precision, operating performance, and capital return. For firms built on value creation, that is not a constraint. It is confirmation of the model.

This is not the end of private equity’s growth cycle. What has changed is the margin for error. For more than a decade, accommodative financing conditions amplified strong execution. Today, those tailwinds are weaker. Returns depend more directly on disciplined underwriting, sustained operating performance, and consistent capital return.

Private equity has always required hard work. It now requires greater precision.

Contrary to popular belief, despite rising geopolitical tensions and continued macroeconomic complexity, M&A transactions between the U.S. and European markets have continued at pace since their initial boost back in 2020. However, the gap between the U.S. and U.K./European financing markets remains as meaningful as the physical distance between the two, making navigation of the nuances tricky for sponsors exploring investment opportunities outside their traditional markets.

With the U.S. BDC market steering many operational considerations for U.S. lenders, and the more nascent private credit market in the European space driving different market behaviors, there can be both potential pitfalls and opportunities to drive a more favorable financing outcome by working both markets. For sponsors and lenders executing cross-border financings, understanding these nuances is critical to finding success across the pond.

Maturity and Depth Drive Behavior
The U.S. private credit market is significantly more mature than its European counterpart. This progression drives practical realities: larger hold sizes, more structure optionality, and overall consistency in how lenders approach competitive processes. The U.S. private credit market can increasingly compete with the large syndicated market and cater to all structures from senior cashflow pricing in the low 400s to stretched ABL structures and through to equity co-investment. This level of depth facilitates a culture of increased speed, focused execution, and ultimately, dealmaking.Banks still play a material role in the European lower- and middle-market leveraged lending space.

In contrast, the European private credit market is still developing and lags the U.S., resulting in structures and hold sizes that tend to be more limited than those available from U.S. credit funds in their home markets. European funds that can comfortably accommodate north of $100M are limited, and most tend to be focused on stretch senior and unitranche cashflow structures. This divide means that a U.S. sponsor expecting a familiar depth of market in Europe may instead face less optionality, multi-lender clubs, and frequently spend as much time placing the working capital facilities as the term debt itself.

One clear illustration driven by this difference is lender participation dynamics. In Europe, lenders often willingly engage in broader competitive processes. Concepts common in the U.S. market, such as exclusivity-linked fees or legal cost underwrites, generally do not exist in European processes today. For sponsors prepared to run a structured outreach across the pond, this can create elongated competitive tension.

The Impact of European Bank Presence
After the 2008 financial crisis, the U.S. regulatory environment steered banks away from leveraged lending, enabling private credit to rise to prominence in the middle market. U.S. sponsors and leveraged borrowers now predominantly call direct lenders first in search of fast, flexible terms. In turn, lenders cater to these expectations, creating an environment that is both highly active and collaborative.U.S. credit funds often provide full financing packages, including working capital, while that model is uncommon in Europe.

Though there are country-by-country nuances, banks still play a material role in the European lower- and middle-market leveraged lending space. Numerous countries remain primarily bank funded; however, credit funds are increasingly looking to facilitate lending across more of the continent as the European appetite for direct lenders continues to evolve. Ultimately, to play in the space, private credit lenders must get comfortable with the regulatory and enforcement complexities that vary by region — adding further opacity to country-specific lender activity, which can lead to slower deal processes.

The Revolver Divide
Another significant transatlantic discrepancy lies in the treatment of working capital facilities. In the U.S., credit funds commonly provide (or front) said facilities, term loans, and follow-on capital — a true one-stop shop.

However, in the European market, this is rare. Revolvers are typically bank-provided, which means sponsors must integrate banks into broader private credit structures. This adds several layers of complexity, including additional intercreditor considerations, the bank’s appetite (or lack thereof) for new sponsor relationships, and general timing challenges, which are often at odds with competitive M&A process requirements.

While European credit funds aim to support local sponsor relationships targeting the U.S., they often face fund and practical limitations for lending to a U.S. borrower. Just as the revolving working capital facility dynamic adds complexity from the U.S. to Europe, the same is found the other way around, as U.S. bank structuring doesn’t naturally align with European credit fund intercreditor dynamics. Reconciling this complexity and smoothing any transatlantic inefficiencies can lead to more than just a speed bump.

Flexibility Versus Cost
Despite the aforementioned constraints of the European market, given the region’s more nascent private credit market, several features can be more flexible in terms of structuring and terms. Examples include less focus on multiple financial covenants, additional flexibility in defining EBITDA (particularly with regard to exceptional items, which can be uncapped and outside specific thresholds), zero contractual amortization, greater flexibility for paid-in-kind interest approaches, and longer availability periods for DDTL/ACF draws.U.S. and European markets differ on due diligence, with lender-required reliance common in Europe and sometimes causing late-stage delays and added costs in cross-border deals.

Yet this kind of flexibility can come at a price. The U.S. market has, in recent years, offered more favorable economics, particularly for closing/arrangement fees and non-utilization/commitment fees, with fairly standardized flat rates rather than a percentage-of-spread/margin approach. In recent years, at times, credit fund fees in the U.S. have even been close to half those in the European market.

Differed Approaches to Due Diligence
Beyond traditional lender dynamics, there are also material differences in the two markets’ approaches to third-party diligence. Whilst non-reliance is standard in the U.S. market, reliance is a common concept in the European market and often a firm requirement — unfortunately, there have been horror stories in which a U.S. buyer of a European business has conducted diligence with a local U.S.-based team, only to find out in the closing stages that the European lenders require reliance to receive internal approval and fund, adding time, cost, and heightened transaction risk.

A More Global Credit Market Requires a More Nuanced Understanding
The differences between the U.S. and European private credit markets add complexity for sponsors and borrowers as they look to invest outside their respective markets, but opportunities do exist in navigating between the two. However, financing a cross-border investment with a home market relationship lender is rarely the best route forward.

Knowing which lenders have appetite in unfamiliar territory, and the status of current market terms can be a big ask for deal teams already burdened by the equity side of the investment. Utilizing an adviser such as Configure Partners, which has expertise in cross-border financings, can not only eliminate potential financing pitfalls but also help drive an optimal financing outcome between the two markets.

About the Author: Based in New York City, David Fleming joined Configure in 2025 as Managing Director. He has nearly two decades of experience supporting the debt financing and M&A needs of private equity sponsors and private companies, with a special focus on supporting cross-border transactions between the US and European markets. During his career, David has advised clients in structuring and executing more than $7 billion in financings comprising super senior, senior, stretch senior, unitranche, and subordinated debt from the bank and private capital markets. Before joining Configure, he was a Managing Director at Deloitte Corporate Finance, where he led its U.S. Cross Border Debt & Capital Advisory business out of New York City. He began his career at Deloitte in the UK, within the Corporate Finance Advisory department. David has a bachelor’s degree in Business Economics from the University of Liverpool.

Configure Partners is a credit-oriented investment bank specializing in debt placement. The firm provides the highest level of client service and execution to middle-market private equity sponsors in acquisition finance, refinancing, and dividend recapitalization transactions, with expanding expertise in cross-border transactions. Configure is one of the largest firms dedicated to debt advisory. We’ve developed our processes and systems to ensure execution across all types of financing transactions. Unlike other debt placement groups, we don’t treat debt advisory as a secondary service offering to M&A — debt placement is a core part of our business.

If the above article has sparked a question or thoughts about cross-border transactions, please feel free to reach out to David Fleming at [email protected].

For years, the narrative around cross-border M&A has been dominated by themes of fragmentation: COVID-era travel restrictions, snarled supply chains, tariff uncertainty, and a divisive geopolitical climate. With such forces at play, it would be reasonable to assume that such M&A activity has cooled.

But the data, particularly between the world’s two largest developed economic regions, North America and Europe, tells a quite different story.

Rather than retreating inward, acquirers on both sides of the Atlantic have leaned further into cross-border transactions. Today, the U.S.–Europe M&A corridor, particularly, is not only resilient but significantly more active in a post-COVID world, contrary to the description above.

A Five-Year Surge in Transatlantic Deal Flow
According to Mergermarket data, excluding megadeals, quarterly M&A activity between the two regions was meaningfully steady over the five years leading up to Q2 2020. On average, there were 187 M&A transactions per quarter involving North American buyers (primarily U.S.) of Western European businesses, and 133 in the opposite direction.

However, in a similar five-year period since Q3 of 2020, there has been a sharp upward increase: an average of 287 transactions per quarter involving North American buyers of Western European businesses, and across the pond, 194 Western European buyers of North American companies.

Businesses across the Atlantic effectively sit “on sale” for U.S. buyers when calculating day-one purchase price consideration.

This change represents a 54% and 46% increase, respectively, and even more noteworthy, it isn’t merely a post-COVID bump. Activity has remained structurally elevated through 2023, 2024, and into 2025 YTD, with average North American-to-Western Europe volumes consistently in the 256–263 range per quarter, and Western Europe-to-North American volumes in the 179–190 range.

The UK as a Gateway
From a country perspective, the UK has consistently been the most active location for businesses targeted by North American buyers, with M&A volumes accounting for close to 40% of the Western Europe figures previously referenced. Historical ties, a shared language, similar legal and regulatory regimes, and cultural overlap continue to drive transaction flows between the U.S. and the UK. For U.S. strategics and sponsors alike, the UK often serves as both a natural entry point and a scalable platform for further European expansion. Despite Brexit, this trend has shown no signs of abating.

From an industry perspective, Technology, Media & Telecom (TMT) is the most active sector in both directions, with close to a third of all volume. Add business services, industrials, and healthcare, and these four sectors account for nearly 75% of all transatlantic M&A between North America and Western Europe. These sectors benefit from scalable business models, deep pools of intellectual property, and the ability to accelerate cross-border value creation, making them natural targets for investors on both sides of the Atlantic.

Acceleration Drivers: Currency, Valuations, and Value-Creation
Since 2015, the U.S. dollar has remained structurally strong against both the pound and the euro. Based on average annual data from OFX, in the years following the 2008 financial crisis, GBP/USD traded at roughly 1.60 until 2016, when the dollar strengthened and the pair moved to around 1.40, with subsequent years seeing further dollar appreciation toward the low-1.20s. Against the euro, EUR/USD declined sharply in 2015, falling from approximately 1.40 to around 1.10, and has remained below the mid-1.20s ever since. As a result, businesses across the Atlantic effectively sit “on sale” for U.S. buyers when calculating day-one purchase price consideration.

Cross-border capability has become a powerful pitch and a compelling part of the value-creation playbook.

This is compounded by the fact that, according to PitchBook data, leveraged buyout valuation multiples have tended to be lower in Europe than in the U.S., with U.S. multiples, on average, about 10% higher than those in Europe between 2022 and 2025 YTD. With intense competition and record levels of dry powder, pricing has pushed up, and U.S. sponsors and corporates increasingly find Europe to be an attractive alternative ground for capital deployment without sacrificing quality.

Additionally, for European acquirers, the U.S. remains the world’s most important growth market. European buyers of U.S. businesses gain immediate scale and brand recognition that might otherwise take years to build. Conversely, U.S. sponsors acquiring European businesses can often accelerate transatlantic expansion in the opposite direction — offering portfolio companies access to U.S. networks, customers, and market know-how in less familiar territory. In short, cross-border capability has become a powerful pitch and a compelling part of the value-creation playbook.

Private Credit Markets are Facilitating Increased Cross-Border M&A Volumes
From a debt perspective, a key catalyst behind this surge is the evolution of the financing markets. The European private credit market has grown and matured considerably over the last 20 years, now frequently providing financing support to overseas sponsors as they make investments across the European continent. As more investors pursue transatlantic acquisitions, the need for flexible cross-border financing structures has grown alongside them, and private credit funds have stepped up to facilitate such transactions, particularly in the lower- and mid-market space.

While in recent years we have seen U.S. credit funds establishing European teams, and significant lender M&A activity in both directions across the Atlantic, the differences between the U.S. and European financing markets remain meaningful. Navigating these nuances is challenging, but it also presents opportunities: sponsors can often achieve superior outcomes by running competitive processes across both markets. This cross-border financing dynamic is a topic deserving deeper exploration and one we will cover further in an upcoming article.

In Closing
Despite heightened geopolitical tension and globalization complexity in recent years, the transatlantic M&A corridor isn’t weakening — it’s strengthening. Cross-border M&A continues to offer strategic, financial, and operational benefits that domestic transactions alone cannot match. For sponsors pursuing growth, cross-border execution capability is becoming an increasingly critical differentiator and one that we expect to continue to be high on sponsors’ strategic agendas.

Configure Partners
Configure Partners is a credit-focused investment bank specializing in debt placement for middle-market private equity sponsors. The firm supports acquisition financings, refinancings, and dividend recaps, with growing cross-border capabilities. Unlike M&A advisors that treat debt as an add-on, Configure is built around debt advisory as a core service. That execution-first approach—combined with a lender mindset that treats the firm as an extension of the sponsor—has translated into repeat business, with more than 80% of revenue coming from returning clients.

About the Author: Based in New York City, David Fleming joined Configure in 2025 as Managing Director. He has nearly two decades of experience supporting the debt financing and M&A needs of private equity sponsors and private companies, with a special focus on supporting cross-border transactions between the US and European markets. During his career, David has advised clients in structuring and executing more than $7 billion in financings comprising super senior, senior, stretch senior, unitranche, and subordinated debt from the bank and private capital markets. Before joining Configure, he was a Managing Director at Deloitte Corporate Finance, where he led its U.S. Cross Border Debt & Capital Advisory business out of New York City. He began his career at Deloitte in the UK, within the Corporate Finance Advisory department. David has a bachelor’s degree in Business Economics from the University of Liverpool.

If the above article has sparked a question or thoughts about cross-border transactions, please feel free to reach out to David Fleming at dfleming@configurepartners.com.

The first half of 2025 marked one of the most challenging fundraising environments in recent years, with a 23% year-over-year decline in capital raises, according to a recent report. The year has been especially difficult as it’s been marked with constrained limited partner (LP) liquidity, muted exits and elevated cost-of-capital dynamics, which have shifted negotiating power decisively toward investors.

General partners (GP) are pulling from a smaller pool of capital in 2026, increasing competition and driving more aggressive side letter demands. Once a rare exception, side letters are increasingly a central feature of fund negotiations, which is fundamentally reshaping how private equity firms operate, report and govern funds. Customization is winning capital, but personalization introduces operational complexity, hidden costs and compliance risks if not properly managed.

The rise of personalization across fund structures
LPs are increasingly requesting bespoke fund terms that go well beyond traditional side letter language, spanning fee breaks and most-favored-nation clauses, preferential liquidity or enhanced transparency rights, regulatory accommodations and jurisdiction-specific tax or legal provisions. However, it’s not just the volume of these requests that’s changed, but many of their scopes now extend deep into the fund’s accounting, reporting and operational workflows, requiring close coordination across legal, finance, compliance and fund administration teams to ensure consistent execution.

While side letters provide LPs with individualized terms and improve capital flow for GPs, they also introduce operational risk.

As private funds expand across borders and the investor landscape becomes increasingly diverse, this level of personalization is no longer reserved for marquee LPs. Instead, bespoke arrangements are becoming normalized across the capitalization table, raising the operational stakes for GPs that must deliver customization at scale without introducing compliance gaps or operational risk.

Balancing investor customization with operational efficiency
GPs are now facing an increasingly difficult trade-off: accommodate bespoke LP demands to secure capital in today’s competitive fundraising environment or preserve the operational simplicity and scalability required to run funds efficiently over the long term. Side letter use is increasing, as LPs grow more sophisticated and want more tailored terms to address regulatory and policy requirements, supplement or clarify fund terms and better align with investment programs. Managing side letter requests introduces administrative and accuracy challenges, and without the right infrastructure in place, firms are left to rely on manual workarounds. Fragmented data from multiple sources in varying formats makes organizing and analyzing information to efficiently meet side letter requests at scale tedious, time-consuming and unrealistic.

Leading GPs are now shifting from reactive accommodation to intentional design, embedding side letter execution into core fund operations from day one to ensure personalization does not come at the expense of control, transparency or compliance. Rather than managing bespoke terms through fragmented legal documents and manual processes, firms are increasingly relying on centralized data and reporting platforms that serve as a single source of truth across legal, finance and compliance teams. By structuring side letter obligations into technology-enabled workflows – spanning accounting functions, investor reporting, fee calculations and regulatory disclosures – GPs gain real-time visibility into investor-specific requirements, reduce execution risk and scale customization without sacrificing operational discipline. In an environment where LP expectations continue to rise, technology has become the critical enabler that allows personalization to be delivered consistently, with full auditability and at scale.

The hidden costs and compliance risks of side letters
While side letters provide LPs with individualized terms and improve capital flow for GPs, they also introduce operational risk. The breadth and complexity of modern side letter practices are creating compliance obligations, requiring fund managers to ensure that every negotiated stipulation is accurately tracked and fulfilled. A single missed or misapplied provision, whether tied to reporting frequency, fee treatment or information rights, can trigger investor disputes, invite regulatory scrutiny and, in some cases, undermine LP trust. Inconsistent application of side letter terms across the investor base can also raise fairness and disclosure concerns, particularly as funds grow and investor profiles become more complex. When these obligations are tracked manually or across disconnected systems, the likelihood of missed deadlines, reporting errors or incomplete execution increases significantly.

Firms are centralizing side letter data to maintain full visibility across legal, accounting, compliance and investor reporting teams, reducing reliance on spreadsheets, email chains and institutional memory.

Simultaneously, heightened regulatory expectations around transparency and consistency shift side letters from a purely legal consideration to a broader fund governance issue. Regulators and investors alike expect GPs to demonstrate not only that bespoke terms were agreed to, but that they are being administered accurately and consistently throughout the life of the fund. As funds scale, even minor oversights can compound into material operational and reputational risk, further reinforcing the need for side letter management to be embedded into core governance, controls and reporting frameworks.

Best practices: standardizing without losing flexibility
To preserve flexibility for investors while reducing operational complexity behind the scenes, GPs are reevaluating existing processes and baking in personalization tools from the start. Rather than negotiating every side letter from scratch, many are moving toward pre-approved side letter frameworks that define acceptable parameters for customization upfront. Commonly requested provisions, such as fee adjustments and reporting enhancements, are being standardized across investor tiers, enabling GPs to offer consistency without sacrificing responsiveness. At the same time, firms are centralizing side letter data to maintain full visibility across legal, accounting, compliance and investor reporting teams, reducing reliance on spreadsheets, email chains and institutional memory.

Crucially, this shift is often supported by deeper partnerships with experienced fund administrators that have the infrastructure and expertise to operationalize bespoke terms at scale. These administrators help translate negotiated language into repeatable workflows, controls and reporting processes that hold up over a fund’s lifecycle. The objective isn’t to eliminate customization, but to make it operationally sustainable. By embedding side letter execution into core fund operations from the outset, GPs can meet investor expectations while maintaining accuracy, consistency and governance as their platforms grow.

Looking ahead: what modern fundraising requires in 2026
As GPs revisit fundraising strategies in 2026 and push to secure capital in an increasingly competitive environment, operational readiness is emerging as a key differentiator. LPs are no longer evaluating managers solely on strategy, track record or projected returns; they’re also scrutinizing a GP’s ability to execute increasingly complex fund structures responsibly and consistently over time. The sophistication of a firm’s operational model, particularly around bespoke investor terms, has become a proxy for broader governance, risk management and long-term scalability.

In this environment, firms that treat side letters as an integral component of core fund governance rather than a post-close administrative exercise will be better positioned to raise capital efficiently, meet evolving regulatory expectations and maintain investor confidence. By embedding side letter management into their operating model from the outset, these GPs can reduce friction during fundraising, avoid downstream compliance and reporting issues, and scale their platforms with confidence. If all of this is accomplished, it can turn operational discipline into a competitive advantage rather than a constraint.

In today’s fundraising environment, personalization may be unavoidable but operational chaos is not. The future of private equity fundraising will favor GPs who can deliver bespoke investor experiences without compromising control, compliance or efficiency.

IQ-EQ is a global investor services firm that provides fund administration, corporate and fiduciary services, and compliance support to private equity, private credit, real estate, infrastructure, and hedge fund managers, as well as institutional and private clients. The company supports fund formation and ongoing operations, including accounting, reporting, regulatory services, and governance.

A new report from Brown Gibbons Lang (BGL) shows that strong demand for data‑center cooling, power management and instrumentation has positioned the HVAC‑equipment sector for consolidation.

Driving the surge, the report notes that exponential data‑center growth—fueled by AI and emerging technologies—is generating a significant need to displace heat. As future power requirements increase, so does the need for innovative, energy‑efficient cooling solutions.

Advanced technologies such as liquid cooling, low‑PUE (power usage effectiveness) systems, instrumentation and control subsystems are attracting capital. The recent strategic acquisitions of Motivair by Schneider Electric and TMGcore by Modine Manufacturing underscore the trend toward consolidation in the sector.

The new BGL report outlines several key takeaways: the growing regulatory focus on energy efficiency; rising investor interest in engineered‑equipment sectors; and a wave of HVAC‑equipment transactions led by both strategic and financial investors. Amid these dynamics, HVAC has shifted from a secondary industrial consideration to a strategic asset in next‑generation digital infrastructure.

The report was published by members of BGL’s engineered equipment investment banking team. This team has experience working with companies that produce highly engineered equipment and machinery, sub-systems, and components used in a variety of end markets.

“Participants in the environmental controls and power management sectors that serve the data center market are experiencing a period of unprecedented growth, fueled by increasing energy efficiency requirements and instrumentation demands to ensure uptime,” said Justin Wolfort, a director within BGL’s engineered equipment team. “We’ve observed a significant rise in investor interest in both mature and emerging technologies utilized in the space. Notable M&A activity by strategic and financial investors alike indicates a market ripe for consolidation and further investment.”

Brown Gibbons Lang is a mid-market investment bank that specializes in mergers and acquisitions, divestitures, capital markets, financial restructurings, valuations, and fairness opinions. The firm was founded in 1989 and has investment banking offices in Boston, Chicago, Cleveland, Los Angeles, and New York.

To download and read the BGL Engineered Equipment Insider click HERE.

© 2025 Private Equity Professional | June 24, 2025

Private equity investment in infrastructure is showing renewed strength as macroeconomic uncertainties stabilize, according to the latest Infrastructure Strategy 2025 report by Boston Consulting Group (BCG).

According to BCG, the private infrastructure market, which has navigated fluctuating deal volumes in recent years, reached an all-time high of $1.3 trillion in assets under management as of June 2024, a strong indicator of investor confidence in the asset class.

Although fundraising remains below its 2022 peak, infrastructure funds secured $87 billion in 2024, reflecting a 14% year-over-year increase. Meanwhile, transaction volume declined by 8%, following a 19% drop in 2023. Despite this, large-scale transactions in the digital infrastructure and energy transition sectors may suggest a rebound as investors look to reinvest capital and capitalize on emerging transaction opportunities.

A notable trend in infrastructure investment has been the growing interest in digital assets, particularly data centers. With AI and cloud computing demand surging, investments in data centers soared to $50 billion in 2024, a substantial rise from $11 billion in 2020. At the same time, energy transition investments, including renewable energy and battery storage, continue to attract funding.

“Infrastructure remains a cornerstone of private investment strategies, offering stability and inflation protection in volatile markets,” said Wilhelm Schmundt, a managing director and senior partner at BCG and the firm’s lead for infrastructure investment. “As investors adjust to a maturing market, we see significant opportunities emerging in energy transition, digital infrastructure, and new investment structures designed to attract capital.”

Private equity and infrastructure funds are adapting to these shifts through industry consolidation, expanded investment mandates, and operational efficiencies.

Within the infrastructure sector, mergers and acquisitions (M&A) have become a key strategy for general partners, with some funds scaling up into diversified infrastructure platforms while others focus on specialized sector-specific plays. New fund structures, including continuation vehicles and sector-specific funds, are also gaining traction, providing limited partners with more tailored investment opportunities. As governments increasingly turn to private capital to bridge infrastructure funding gaps, co-investment opportunities are also expected to rise.

“Private investment will be critical to modernizing infrastructure and meeting the world’s growing connectivity and energy needs,” said Alex Wright, a managing director and partner at BCG. “With capital deployment expected to accelerate in 2025, we anticipate a more dynamic investment landscape, particularly in AI-driven infrastructure, renewables, and smart grids.”

A PDF of BCG’s Infrastructure Strategy 2025 report can be accessed HERE.

© 2025 Private Equity Professional | March 18, 2025

The State of the Game
The private credit arms race has taken the industry landscape by storm, with Ken Moelis citing the shift as the “greatest change in the history of transactional finance.”^[1] Already enjoying years of measured growth, when banks and the broadly syndicated loan market stepped back from lending in 2023 due to market volatility, private credit stepped up, cementing private credit’s position as a force in financing markets. This has created a very active M&A and joint-venture market that does not seem to be slowing anytime soon.

BlackRock made headlines in late 2024 through the firm’s acquisition of HPS Investment Partners, backed by their expectation that the private debt market will more than double to $4.5 trillion by 2030.^[2] While BlackRock’s acquisition dominated the news cycle, other firms have already made it their prerogative to jump into the private credit pool. In late 2024, Wendel Group acquired a majority stake in Monroe Capital, and Third Point (Dan Loeb’s hedge fund) acquired AS Birch Grove. In late 2023, TPG bought Angelo Gordon, and going even further back, Eldridge Industries acquired a majority stake of Maranon Capital in 2019. Eldridge recently announced a rebrand of its combined private credit vehicles, including Maranon and Stonebriar Commercial Finance, as “Eldridge Corporate Credit.”

The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit.

Banks have also taken the plunge to offer product and garner revenue lost within their traditional lending and leveraged finance practices (most notably broadly syndicated loans or “BSL”). Wells Fargo and Centerbridge Partners joined forces in late 2023, PNC and TCW Group followed suit, and then in September 2024, Citibank and Apollo created a direct lending program with a goal of financing “approximately $25 billion of debt opportunities over the next several years, encompassing both corporate and financial sponsor transactions.” ^[3]

Consolidation Drivers
What is driving the push towards consolidation and bank / private credit partnerships occurring in the market? The sector has become extremely attractive for investors, with LPs and asset managers pouring money into private credit. It has even been a more favored asset class over private equity in the last few years (though the markets are intertwined). Fundraising for private credit reached $207B through Q3 of 2024, an increase from $193B over the same period in 2023, while average vehicle size approached $1.2B, marking 2024 as the first year for average vehicle size to eclipse $1B.^[4] Meanwhile private equity was on pace for its lowest annual fundraising total since 2020, having raised only $234B through September.⁵

Additionally, private credit is increasingly competitive against (and in some instances more attractive than) BSLs. From 2022 through 2024, private-credit-financed buyouts outnumbered BSL financed deals 6 to 1. To compete against the BSL market, private credit needed significant size and scale, and the sector has done just that — 40%+ of private debt capital raised was for funds over $5B, while five years ago, only 20% of capital was for funds over $5B.^[5]

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension.

Lastly, the dearth of overall M&A activity over the last 12 – 24 months has provided the perfect environment for dealmaking at the fund level. A respite offered by relatively slower activity and deployment caused managers to explore and execute on transformational initiatives such as acquisition(s) for scale and / or Joint Venture(s) to broaden offerings.

The Good, the Bad and the Ugly
Regarding the upside for borrowers, the primary benefit is that investment in the market means more capital, which results in more competition and better terms. Additionally, the upper end of the market will be deeper than it has been historically.

The bad? The shift could result in a turnover in deal teams, specifically regarding who covers the deal. The team that closes a deal may not necessarily manage the relationship going forward.

Conflicts of interest, particularly arising from JVs between banks and private credit, could also create tension. These nascent alliances will require a delicate balance between investment banking divisions, leveraged finance departments, commercial and corporate lending, sales and trading desks, ancillary banking offerings (e.g., hedging, treasury), fund financing, and more. In an ultimate downside scenario, could this lead to a Volcker Rule 2.0? The original legislation, of course, limited banking entities’ relationships with private equity funds.

In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage.

Additionally, the traditional capital directed towards the middle market may get lighter. Private credit, which used to focus on smaller deals, has moved upward to compete in the BSL universe. Funds are moving up market for $100 – 200M minimum check sizes, leaving a shrinking number of players in the $30 – 75M size range.

Lastly — the ugly. As with any deal, not all of them are successful. Unfortunately, some mergers and JVs have significant integration issues and could leave borrowers scrambling for the next step. Onex’s 2020 purchase of Falcon Investment Advisors lasted less than four years, as Onex divested its majority stake of the ~$4B AUM credit fund in Q3 2024.^[6] Similarly, Voya divested Czech Asset Management less than three years after acquiring the ~$5B AUM direct lender. Although the Onex/Falcon separation was due to synergies across the remainder of Onex platforms failing to materialize (and no rationale has yet been provided for Voya / Czech), other “break-ups” could be much worse and have a spillover effect for borrowers.

Considering the Above
While it’s an exciting time for participants in the private credit market with increased activity and interest, there are, of course, factors that may affect sponsors and borrowers. In addition to the aforementioned dynamics, rapid evolution means sponsors and borrowers face an increasingly difficult task with lender coverage — which in turn lends itself to better terms and best execution. With new funds forming, investment parameters shifting, and consistent lender velocity, broad coverage of the lender universe will require more investment of time and attention.

About the Author
James Bardenwerper is a Director at Configure Partners, where he joined in 2018 as an Associate. Before joining Configure Partners, he was at Genuine Parts Company, supporting merger and acquisition efforts and strategic planning. He began his career as an Analyst at SunTrust Robinson Humphrey (now Truist Securities), where he spent three years advising clients on debt and equity capital raises across various industries.

James received a bachelor’s in finance from the University of Kentucky. He is a FINRA General Securities Registered Representative (Series 79, 63).

Footnotes:
1 – Ken Moelis, Unplugged in New York
2 – BlackRock to Acquire HPS Investment Partners to Deliver Integrated Solutions Across Public and Private Markets
3 – Citi and Apollo Announce $25 Billion Private Credit, Direct Lending Program
4 – Private Debt Investor Fundraising Report Q3 2024
5 – Pitchbook Q3 2024 US PE Breakdown, Configure Partners Private Credit Quarterly
6 – Onex Hands Control of Private Credit Unit Falcon Back to Its Managers

© 2025 Private Equity Professional | January 9, 2025

RWI usage is declining^[1] for deals closed in 2024, including among Private Equity buyers.^[2] When an M&A deal requires more carveouts for things like survival periods and caps and special escrows to cover RWI policy exclusions and limitations, deal makers are reevaluating the structure and cost of indemnification. Additionally, RWI may not provide a safety net expected by the sellers.

The Bottom Line
Deal parties have learned from the data that using RWI can add time and complexity to an M&A deal, both in negotiating the indemnification provisions and navigating post-closing indemnification claims. Every M&A deal is unique, and whether RWI is right for a transaction should be a case-by-case evaluation. Deal parties are now taking a closer look at whether RWI is best suited to meet their respective needs.

What the Data Says
Fewer deals today use RWI. After a high-water mark in 2021, a year when buyers often needed to find ways to sweeten their bids in a very competitive M&A landscape, RWI has been purchased on fewer deals each year. So far in 2024, RWI usage is down across all buyer types and deal sizes.^[2]

Not all M&A deals are a good candidate for RWI. RWI is more common on “cleaner” M&A exits, such as deals with higher values, a higher return-on-investment, longer exit timelines, fewer management carveouts, and “no survival” of the seller’s general reps & warranties.^[5]

Indemnification provisions between buyers and sellers are more carefully negotiated as buyers seek additional protections.

Deals with RWI are more likely to have special escrows^[3], typically to cover policy exclusions and caps. This data can be especially helpful when setting expectations with sellers during deal negotiations. Deals with RWI tend to have smaller escrows, and the median size of the general indemnification escrow is 0.5% of transaction value. However, when you factor in additional special escrows, and that buyers are successfully adding such escrows on nearly 50% of deals with RWI, the median aggregate amount escrowed on these deals is 2.5% of transaction value.^[4]

Last but not least, deals with RWI are more likely to have post-closing indemnification claims, especially because of the way these policies are structured: buyers (i.e. the insured) are motivated to burn through the retention (i.e. insurance deductible) quickly.^[6] When coverage under the policy does come into play, indemnification claims run through RWI take longer to resolve. Whereas about half of claims handled by RWI are resolved within 12 months, closer to three quarters are resolved within that time when handled by a professional shareholder representative.^[7]

Buyers are Reacting, Adapting
Smart and agile M&A deal parties evaluate market data, like that above, and stay ahead of emerging trends. In 2021, a record-setting year for M&A deal volume, buyers were often faced with expedited timelines and may not have been able to perform full due diligence. A few years later, deal parties are experiencing the effects of lax diligence (e.g., a huge increase in post-closing indemnification claims for breach of the “no undisclosed liabilities” seller representation ^[8]). Lessons were and continue to be learned.

Declining RWI usage indicates that the M&A market is still adapting, with deal parties carefully assessing the use of RWI on a case-by-case basis. 

With the pace of dealmaking significantly slower these past two years, buyers have taken advantage of the time to conduct more thorough due diligence, to which RWI underwriters are also privy. As a result, indemnification provisions between buyers and sellers are more carefully negotiated as buyers seek additional protections. RWI can sometimes provide coverage for the additional matters uncovered during due diligence, but not always. Sellers can find themselves agreeing to carveouts and special escrows for which they are still directly responsible in addition to the cost of RWI.

Private Equity Buyers and RWI
It is no secret that PE buyers are more likely to consider RWI when compared to other buyer types. Changes in RWI utilization, and related trends for deal terms relevant to RWI, are less dramatic year-over-year with PE buyers. It’s worth noting when there are shifts involving PE buyers.

For example, when strategic buyers were using RWI less and less in 2022 and 2023, PE buyers remained relatively consistent, with RWI identified on about 65% of deals. So far in 2024, however, RWI usage among PE buyers is down.^[2]

One thing is clear, deal parties are getting more efficient at identifying when RWI might work as intended and when it might not.

Interestingly, several M&A practitioners have recently mentioned cases where PE buyers negotiate the deal as if there will be RWI, but at closing the PE buyer elects to skip the premium cost to purchase the policy and instead essentially decides to self-insure. (i.e., carefully evaluating the structure and cost of indemnification).

Going Forward
Declining RWI usage indicates that the M&A market is still adapting, with deal parties carefully assessing the use of RWI on a case-by-case basis. Lessons emphasizing the importance of due diligence suggest that buyers will maintain thorough diligence practices, even as market activity increases. Meanwhile, indemnification provisions are expected to remain a focal point of negotiation

As we begin to see more deal activity in the latter part of 2024 and into 2025, especially from PE buyers and sellers, it will be even more important to keep an eye on these RWI trends. The market is adapting and adjusting as more information and data about RWI becomes available. One thing is clear, deal parties are getting more efficient at identifying when RWI might work as intended on their M&A deal and, perhaps more importantly, when it might not.

About the Author
Kip Wallen is a senior director leading the SRS Acquiom thought leadership practice. He leverages his extensive expertise and SRS Acquiom proprietary data to produce resourceful content regularly utilized by market practitioners. Kip has broad experience in M&A and provides guidance on market standards and trends.

Previously, Kip was a Director with the SRS Acquiom Transactional Group, where he collaborated with clients and counsel to negotiate M&A documents including purchase, escrow, payments, and other transactional agreements. Before joining SRS Acquiom, Kip was an attorney with a Denver-based boutique business law firm where he assisted clients with M&A transactions as well as general corporate governance and securities matters.

Kip is an avid supporter of the Colorado Symphony, serving on the Associate Board and Colorado Symphony Fund Board, and the Colorado Rockies. He is an active participant on the American Bar Association’s M&A Committee. In 2016, Kip completed Leadership 20 with the Denver chapter of the Association for Corporate Growth.

Kip received his J.D. from the Sturm College of Law at the University of Denver and an M.S. in Economics, B.S. in Economics and B.A. in International Relations from Lehigh University. He is a member of the Colorado bar.

Footnotes:
^[1] Source: 2024 RWI Highlights: Effect of Reps and Warranties Insurance on M&A Deal Terms (“SRSA RWI Highlights”).
^[2] Source: 120+ deals closed in 2024 on which SRS Acquiom serves as the Shareholder Representative. Some 2024 data is available at SRS Acquiom MarketStandard^TM
[3] Source: SRSA RWI Highlights.
^[4] Source: SRSA RWI Highlights.
^[5] Source: SRSA RWI Highlights.
^[6] Source: 2024 SRS Acquiom M&A Claims Insights Report.
^[7] Source: SRSA RWI Highlights (including data from the presentation “Aon R&W Insurance Claims”).
^[8] Source: 2024 SRSA M&A Claims Insights Report.

© 2024 Private Equity Professional | December 20, 2024

The latest survey from Grant Thornton reveals that private equity professionals are forecasting a rise in transaction volume, despite the uncertainty surrounding the upcoming U.S. presidential election.

The survey, which polled 255 M&A professionals, found that 67% of respondents anticipate increased deal volume over the next six months. Despite high interest rates, M&A professionals cited several factors contributing to stronger deal activity in the latter half of the year.

Respondents pointed to a demand for technological advancements as a driver for deals. Sixty percent identified technology, media, entertainment, and telecommunications as key sectors for M&A activity in the coming six months. Healthcare and energy followed, ranking second and third with 34% and 31% of respondents, respectively.

Private equity (PE) firms also indicated plans to participate. Many PE firms have been holding cash, waiting for better opportunities. However, some firms may soon face pressure to return capital to investors if they do not deploy funds. Additionally, firms that have held portfolio companies for extended periods are feeling the need to sell to provide returns to investors.

Although 77% of PE respondents were optimistic about the performance of their portfolio companies over the next 12 months, 54% of PE and corporate respondents admitted to holding assets for longer periods than usual.

Vic Sandhu, a managing director at Grant Thornton, noted that investors can become restless when assets are held for longer durations. “Buyers are going to find opportunities where valuations are slightly depressed in some subsectors, while others may see valuation increases,” said Mr. Sandhu. “This reflects productivity changes and growth in certain sectors.”

However, the survey also highlighted continued challenges in securing financing.

Financing Remains Uncertain
High interest rates have created turbulence in the M&A landscape. Constraints in the lending environment have led respondents to close fewer deals, increase the equity portion in financings, and explore alternative financing structures.

Among those exploring new avenues, 85% are considering preferred equity and debt structures, while 55% are turning to investments from specialized private funds.

Tom Libeg, principal at Grant Thornton, observed that bankers are spending more time developing creative financing solutions. “I’ve seen more deals where firms collaborate and explore alternative structures to close transactions,” said Mr. Libeg. “Later, they may consider different recapitalization options.”

Interestingly, M&A professionals remain divided over whether lending conditions will improve. While interest rates are expected to drop, 34% of respondents predict a more constrained lending environment over the next 12 months, while 40% expect fewer constraints.

According to Mr. Sandhu, transaction volumes will rise sharply if interest rates decline significantly. If not, M&A activity will likely see a slower, long-term recovery.

“When buyers identify premium assets, they move quickly to involve service providers and differentiate their bids by offering speed and certainty in closing,” said Kosta Kourakis, a principal at Grant Thornton. “As the market heats up and more deals arise, the ability to act swiftly will become a key differentiator.”

Caution Surrounding the Election
While many M&A professionals are confident that deal volume will rise over the next six months, 40% indicated pausing deals until after the U.S. presidential election in November.

Roughly half of respondents said the election would not impact their deal-making, while 10% reported accelerating M&A processes to close deals before the election.

According to Sandhu, buy-side and sell-side professionals in industries vulnerable to regulation and market uncertainty tend to hold off on deals until after the election. “If businesses cannot withstand economic disruptions, it makes sense to pause deals until after the election,” said Mr. Sandhu. “A clearer political landscape can lead to more informed decisions, potentially resulting in better deal outcomes.”

Respondents ranked four factors regarding how they might be affected by the election. Nearly half (49%) said the election’s impact on the overall economy would have the greatest influence on M&A activity. Twenty-five percent highlighted regulatory policy, while 21% pointed to tax policy. The impact of trade policy was ranked as less critical.

The survey was conducted in July, before Joe Biden withdrew from the presidential race, and Kamala Harris became the presumptive Democratic nominee against Republican Donald Trump.

Founded in Chicago in 1924, Grant Thornton is the U.S. member firm of Grant Thornton International, one of the world’s largest audit, tax, and advisory firms. The firm generates over $2.4 billion in revenue and operates over 50 offices with over 600 partners and 9,000 employees.

To view the full results of the Grant Thornton survey, click HERE.

© 2024 Private Equity Professional | September 17, 2024

According to Bain & Company’s 2024 Private Equity Midyear Report, the two-year long slump in global private equity looks finally to be bottoming out with the industry finding a footing from which to climb back.

But while private equity activity appears to have arrested its freefall, Bain cautions that it remains subdued by historical standards – especially relative to a $3.9 trillion mountain of available dry powder ($1.1 trillion of this committed but uncalled capital in buyout funds).

Prospects for revival remain tentative with momentum still scarce. Among positive signals for prospects, the private equity industry’s precipitous slide in both deal-making and exits over the past two years largely levelled off in the first months of 2024.

Globally, private equity’s buyout transaction count through May 15 was down 4% on an annualized basis versus 2023, putting it on track to finish the year broadly flat compared with last year’s tally. Buyout transaction’s global value is on track to finish the year at $521 billion, up 18% from 2023’s $442 billion – but with the rise driven by a higher average deal size – $916 million, up from $758 million – rather than more deals.

Private equity is at an important turning point with dealmaking and activity now picking up.

Private equity exits also looked to have halted the steep declines of the past two years. The total number of buyout-backed exits is tracking flat on an annualized basis, while exit values are trending to finish 2024 at $361 billion, registering a 17% rise from 2023 – but still leaving this year shaping up as the second worst for private equity exit values since 2016.

In a further indication of steadily reviving optimism over the outlook, Bain also reports that informal discussions with general partners (GPs) globally suggest that deal pipelines are already beginning to refill, with many sighting “green shoots” of a recovery emerging. GPs’ latest observations are more upbeat than in Bain’s most recent March survey of 1,400 private equity market participants which found that 30% did not expect a dealmaking resurgence until Q4 of this year, with close to 40% expecting that to take until 2025 or beyond.

Yet while Bain’s report notes that 2024’s final tally of transaction value will likely approach that of the buoyant years before an anomalous post-pandemic spike in 2021, it suggests that it is too soon to assume a “return to normal”, with a sustained upswing in activity, given the series of key challenges that confront the private equity.

“With the year having got off to a better start we’ve been cautiously optimistic about 2024’s outlook. We’re seeing that validated with the data that’s coming through, as well as other indicators, showing that PE is at an important turning point with dealmaking and activity now picking up. So, we see better prospects emerging,” said Rebecca Burack, the global head of Bain’s private equity practice. “But the challenges facing the industry, for example around interest rates, value creation, and especially the exit logjam and the need to respond to pressure to get capital back to limited partners (LPs), mean this year will also be an important inflection point in other ways, too, as GPs look to get the wheel spinning once again.”

Adjusting to the ‘new normal’ imperative amid higher rates and an array of challenges
Bain’s Private Equity Midyear Report maps out an array of critical challenges that private equity firms are under pressure to address urgently, from prolonged uncertainty over the macro-economy and interest rates that look set to stay higher for longer, to continuing geopolitical turbulence, to the sector’s exits gridlock. Bain urges that private equity firms need to move quickly and decisively to adapt to a changed market – rather than expect a rapid resumption of business as usual, as seen before the market slowdown over the previous two years.

“The imperative is to adjust to the ‘new normal’,” said Hugh MacArthur, the chairman of the global private equity practice at Bain. “It typically takes 12 months or more for a boost in exits to produce a turnaround in fund-raising – so even if dealmaking picks up this year it could take until 2026 before the fundraising environment really improves. So, in a hotly competitive market for capital, private equity firms need to make decisive moves to change the narrative. They need to use this time to take a clear look in the mirror and understand how limited partners really see their fund and then to translate those insights into stronger performance and more competitive positioning. Importantly, that includes sharpening value creation – in an environment of higher rates the premium is going to be on producing margin and revenue growth in portfolio businesses.”

Exits gridlock persists, multiplying pressure to return more cash to LPs and hampering fund-raising
The continuing deep freeze afflicting private equity exits is a critical area of pressure highlighted in the report. It finds that the continued low level of exits, leaving private equity firms sitting on trillions in unsold and aging assets, is making life increasingly uncomfortable for GPs in multiple ways.

Crucially, Bain notes that the prolonged slump in exits is preventing the return of capital to LPs that are increasingly pressing for a rise in current low levels of distributed-to-paid-in capital (DPI). In turn, LPs’ dissatisfaction over distributions is impeding new fund-raising with investors focusing new commitments on a narrower swath of favored funds. A recent poll by the Institutional Limited Partners Association showed only a small minority of LPs were satisfied by the urgency GPs are placing on increasing liquidity.

One brighter spot for exit prospects is a reopening of the initial public offering market.

The impact on fund-raising means that the environment for private equity to secure new capital remains a tale of haves and have-nots. Through May 15, private equity has raised $422 billion in capital versus $438 billion over the same period last year. The trend suggests fundraising will reach an annualized $1.1 trillion in 2024 – marking a 15% drop from the previous year. Buyout funds are dominating the fund-raising landscape, with $199 billion raised up to May 15, and the category set to reach a tally of $531 billion by year-end, a 6% rise from 2023’s total.

Bain highlights that while the overall fund-raising figures look relatively robust, LPs’ increasing focus on a narrowing swath of favored fund managers means that in buyouts the 10 largest funds closed took in some 64% of total capital raised so far this year, with the largest single fund – the $24 billion EQT X fund- accounting for 12%. As a result, the bulk of buyout funds are left to battle over the remaining 36% of capital available and at least one in five buyout funds is closing under its target.

One brighter spot for exit prospects is a reopening of the initial public offering market, sparked by a surge in public equities over the past six months that has also relieved some liquidity pressures on LPs, today’s report notes. But while a revived IPO market has produced several large exits in Europe, the report adds that IPO exit channel still represents only a sliver of exit totals, with the corporate deals and sponsor-to-sponsor exit channels still largely flat.

Persistent macro nerves and rate-related operational challenges keeping dealmakers cautious
Persistent macro-economic and geopolitical uncertainties, with still-elevated global interest rates that may not be lowered as much as expected this year, also remain a persistent drag on private equity’s revival prospects. Bain notes that still-elevated rates are keeping dealmakers cautious, distracted, and wary on either side of transactions – while also aggravating the challenge of managing rate-related issues within existing portfolios.

Interest rates that have stayed higher for longer have also raised the stakes for funds in holding assets over longer periods in the face of the declining exits. Balance sheets have come under pressure from the increased cost of debt financed by adjustable-rate loans so that portfolio managers are spending increasing time in negotiation with lenders and managing operational issues, with this then acting as a brake on new dealmaking activity.

Against this backdrop, and with a full-blown revival in fundraising and overall private equity activity likely to take a number of months to come through, Bain’s analysis advocates for firms to implement determined action to fully understand their LP investors’ expectations and needs – and to develop a comprehensive plan across their portfolios to meet those requirements and deliver value.

For a copy of Bain’s 2024 Private Equity Midyear Report click HERE.

Bain & Company, a global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm has 65 offices in 40 countries  and is headquartered in Boston.

© 2024 Private Equity Professional | June 4, 2024