Slowed investments and exits in 2025 show strategic restraint

Private equity dealmaking downshifted in the first half of 2025, with both new platform investments and exits softening. 

Dealmakers are navigating higher borrowing costs, bid-ask valuation spreads, extended diligence cycles, and longer holding periods. What was once a race to deploy capital has become a test of patience and precision. 

The chart below, which traces 25 years of market activity, clearly demonstrates the impact of those macroeconomic realities. 

Investments are still outpacing exits by about 2:1, indicating continued overall portfolio growth, but at a slower pace than the 3:1 ratio seen between 2022 and 2023. This cooling trend underscores how higher financing costs and valuation pressures are reshaping deal velocity. 

Connecting the Dots with Earlier Trends 

In March, we noted that investment and exit trends were normalizing, stabilizing after 2023’s volatility, though capital deployment remained sluggish. That normalization has evolved into a phase of strategic restraint. 
 
Dealmakers are now more selective, emphasizing bolt-ons and operational improvement rather than large new platforms. Elevated borrowing costs continue to deter highly leveraged deals, and valuation alignment between buyers and sellers has stalled, especially for assets purchased at peak 2021–22 multiples, affecting the pace of exits. 

Key Takeaways

• Higher costs of debt continue to weigh on leveraged buyouts as lenders are choosier, and diligence cycles are longer

• Valuation mismatches are delaying both deal closings and exits

• Longer holding periods reflect a cautious, wait-and-see approach among sponsors

• Deal activity has shifted from growth-at-any-cost to greater precision and selectivity

• Uncertainty around tax policy (notably tariffs) prompted some sponsors to delay acquisitions and exits

• Sellers, unwilling to concede on price, are delaying exits in hopes of stronger valuations

• Exits have softened as firms extend holding periods and explore continuation funds or minority recaps to manage liquidity

• Average holding periods are now bumping up against six years, the highest we've seen since we began tracking this metric

A Market Pause, not a Retreat 

While the market is currently in a pause, it is not a full retreat. Should borrowing costs decrease later in 2025 and changes in tariffs solidify, deal flow could rebound. However, the pace and nature of transactions are expected to change, with fewer, more operationally focused deals likely replacing the high-volume momentum seen in 2021.