2025 was very much a year of two halves. Whilst there was optimism early in the year, H1 proved to be a period of cautious readiness of activity for most sponsors. Many assets were prepared for sale during this period and early-stage discussions held with potential bidders, but the number of transactions successfully executed in H1 was more muted as sponsors sought to understand the impact of the Trump administration's new tariff regime and inflation remained stubbornly higher than forecast. However, this was followed by a significant uplift in the European market in H2, with a large number of deals executed in November and December in particular.

Assets in the business services sector proved to be highly attractive to private capital. Strong interest was seen in relation to legal, accountancy and other professional services and consultancy firms. We expect to see this trend continue for the remainder of 2026, as many platform investments now look to execute a consolidation strategy and more sponsors look for platforms to build from. Interest also grew in defence sector supply chain businesses, as ongoing geopolitical uncertainty vastly increased planned government defence spending. Whilst still very active, there has been more caution in the technology sector, with sponsors seeking to understand the impact of AI development and valuations proving much harder to assess and predict following significant stock market volatility in early 2026.

We also saw in 2025 that many sponsors had much greater success in achieving exits for assets in pre-COVID vintage funds. Businesses in these funds, whilst in many cases being high quality, were impacted by the combined effect of COVID on trading, followed by a significant change in the interest rate environment. Exits at the right valuation therefore proved difficult to execute during 2023 and 2024. However, last year we saw valuation gaps being bridged and deal structure creativity being used to get deals over the line.

Deal creativity has shown up in this year's trends, with often complex deferred consideration structures being common on deals and being utilised in a variety of forms, not just classic earn-outs. In equity terms, ratchets have remained at a high level as investors seek to reward management teams who deliver outsized returns. Many other structures have been used to manage the persistent bid/ask spread resulting from the fundamental shift in underlying modelling assumptions over the preceding years. 

The ongoing maturation of the private capital industry has seen some strong themes emerge. The first is the focus of this year's Closer Look – GP stakes transactions. Private capital firms are increasingly seeking external investment – whether this is by way of a merger or takeover with another private capital firm, obtaining investment from a strategic investor (including existing cornerstone investors in the firm's funds) or obtaining investment from a fund specialising in GP stakes. These highly bespoke transactions vary significantly based on the strategic rationale behind them and our Closer Look section goes into detail on key considerations to have in mind from the outset of such transactions.

However, alongside consolidation in some segments of the market, there are also an increasing number of new, emerging managers as investment professionals from more established platforms look to forge their own path. In a difficult fundraising environment, these emerging managers are raising capital in creative ways, including on behalf of ultra-high net worth individuals and family offices as well as raising financing on a deal-by-deal basis. As the top-end of the industry experiences ongoing change and consolidation, we expect to see this trend for new and emerging managers continue, shifting the balance of market participants and perhaps acting as a catalyst to deal activity.

The outlook for the remainder of 2026 remains difficult to predict until there is clarity on the resolution of the Iran conflict and the impact of the closure of the Strait of Hormuz on supply chains, inflation and interest rates over a longer-term period. If there is a relatively quick resolution, we may see a H2 similar to that in 2025 with an influx of deals delayed by uncertainty in the first half of the year. However, if the conflict persists for a longer period, we expect to see sponsors being highly selective in their choice of assets, favouring those less exposed to inflationary pressures and a continued period of cautious deployment.

With all of that said, private capital underpins the modern economy and is perhaps the most dynamic form of financing for aspirational businesses. The underlying principles of incentivising success (in a broad sense) and aligning interests are the engine room for growth. Private equity has proved time and again to be highly resilient, flexible and, importantly, human and supportive in the face of the most extreme macro-economic circumstances. In some quarters the industry is undergoing change and development and continues to face significant challenges – some of that is uncomfortable – but our medium to long-term prediction is this: the change and development we are seeing today will form a solid foundation for the next ten years of success for the industry and for its crucial role in the growth of the economy.

We would like to thank our clients for their continued support over the last year, and we look forward to continuing to play our part through 2026 and beyond.