Private equity (PE) entered 2024 with cautious optimism after two consecutive years of declining deal activity. By the end of the year, the industry had doubled the number of megadeals, but bankruptcies among PE-backed firms also hit a record high.
With interest rates set to decline further in 2025 and over $2.5 trillion in dry powder still available, the coming year presents both opportunities and risks for general partners (GPs). Large-scale transactions are returning, but higher borrowing costs, tightening private credit conditions, and shifting investor sentiment are reshaping the private equity landscape.
This article breaks down the biggest PE trends of 2024 and what’s ahead for dealmaking, credit markets, and restructuring in 2025.
Table of Contents
The Return of Megadeals: Private Equity’s $5 Billion-Plus Comeback
After a slowdown in 2022 and 2023, private equity megadeals made a strong return in 2024, with 18 transactions valued at $5 billion or more—more than double the prior year’s total.
What Fueled the Surge?
- Declining interest rates: The Federal Reserve’s mid-2024 shift toward rate cuts made LBO financing more feasible.
- Dry powder pressure: Global PE dry powder fell to $2.51 trillion in December 2024, marking its first annual decline since 2010. Firms were under pressure to deploy capital before funds aged out.
- Stabilizing valuations: The mismatch between buyer and seller expectations that plagued dealmaking in 2022–2023 began to narrow, allowing more transactions to clear.
Biggest PE Megadeals of 2024
- Novo Holdings acquired Catalent Inc. for $16.3 billion—the largest PE deal of the year.
- Squarespace Inc. was taken private in a $7.31 billion buyout.
- Smartsheet Inc. and Nuvei Corp. were acquired for $7.28 billion and $6.15 billion, respectively.
Which Sectors Led the Megadeal Recovery?
- Technology, media, and telecommunications (TMT): Accounted for 7 of the 18 largest deals.
- Financial services: Followed with 4 megadeals, fueled by continued consolidation in asset management and fintech.
- Healthcare: Remained a strong PE focus, despite regulatory hurdles in certain sub-sectors.
Outlook for 2025: Will Megadeals Continue?
Yes, but with caveats. The expectation of further Fed rate cuts and accommodative M&A policies under the Trump administration will support more large-scale transactions. However, regulatory scrutiny—particularly from the FTC and European regulators—remains a potential roadblock.
Record-Breaking PE-Backed Bankruptcies: What Went Wrong?
While megadeals surged, bankruptcies among PE portfolio companies hit an all-time high. In 2024, 110 PE-backed firms filed for bankruptcy, a 15% year-over-year increase and the highest total on record.
Why Are PE-Backed Firms Struggling?
- High-interest debt from 2021–2023 is crushing balance sheets: Even with falling rates, many companies are locked in debt at peak borrowing costs and struggled to refinance.
- Consumer spending is shifting: Retail and discretionary spending declined, hitting PE-backed consumer brands and retailers hardest.
- Private credit lenders are more aggressive: Non-bank lenders enforced stricter covenants and accelerated defaults, leading to faster bankruptcies.
Industries Hit Hardest by PE Bankruptcies
- Consumer discretionary (29 bankruptcies): Inflation-weary consumers cut back on non-essential purchases, leading to liquidity crises.
- Healthcare (27 bankruptcies): Rising labor costs, regulatory pressure, and reimbursement challenges strained PE-backed providers.
Largest PE-Backed Bankruptcies of 2024
- H-Food Holdings LLC (Snack Maker): Filed for Chapter 11 with $2.83 billion in liabilities.
- Wellpath Holdings Inc. (Correctional Healthcare Provider): Entered bankruptcy as part of a restructuring plan.
- Big Lots Inc. (Retailer): Filed for Chapter 11 with over $1 billion in liabilities after its asset sale collapsed.
Will Bankruptcies Continue in 2025?
The short answer: Yes, but at a slower pace. With interest rates declining, firms in distress will have more options to restructure debt without formally filing for bankruptcy. Out-of-court liability management deals are expected to rise.
Private Credit: The New Power Player in PE Deals
One of the biggest shifts in private equity financing over the past decade has been the rise of private credit. In 2024, private lenders accounted for more than 60% of PE buyout financing, overtaking traditional banks.
Why Private Credit Is Reshaping PE
- Flexibility: Private lenders offer higher leverage ratios and customized debt structures compared to traditional banks.
- Speed: Direct lending deals close faster, giving PE firms a competitive edge in auctions.
- Control: Private lenders retain more control over distressed assets, accelerating restructurings.
However, this shift comes with risks:
- Private credit firms are more aggressive in calling defaults.
- Debt covenants are stricter, increasing the likelihood of early-stage financial distress.
Top Private Credit Managers by AUM (2024)
- Apollo Global Management: $480 billion
- Blackstone Credit: $250 billion
- Ares Management: $210 billion
What’s Next for Private Credit in 2025?
- Private lenders will continue dominating PE financing, especially in the middle market.
- Regulators are eyeing private credit exposure, raising potential oversight risks.
Final Thoughts: What 2025 Holds for Private Equity
The PE industry is at a crossroads heading into 2025:
- Megadeals are back, fueled by lower rates and dry powder pressure.
- Bankruptcies hit record levels, but restructuring trends suggest fewer formal filings in 2025.
- Private credit is now a dominant force in PE financing, but its aggressive lending tactics could lead to more financial distress.
With a more M&A-friendly U.S. regulatory climate, a recalibrating credit market, and more capital needing to be deployed, private equity in 2025 will be defined by both opportunity and risk. Firms that execute disciplined deals, manage portfolio risk, and adapt to shifting credit conditions will be best positioned for the years ahead.
References
- https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/private-equity-backed-megadeals-jumped-higher-in-2024-87094719
- https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/pe-backed-company-bankruptcies-in-us-reach-record-high-in-2024-87023731
- https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/record-pe-portfolio-company-bankruptcies-ranking-top-private-credit-managers-86999640