Despite rising pressure to increase their activity, private equity funds in the UK cooled their M&A activity during the first quarter of 2025, mirroring a trend also seen in other parts of the world.
According to a new analysis of PitchBook data by RSM, private equity buyouts in the UK market during Q1 2025 were down by 36 per cent compared to the previous quarter, falling from 453 in Q4 2024 to 291. This also represented an 18 per cent year-on-year drop from 357 deals in Q1 2024.
The drop in activity was driven by steep declines in a number of key sectors, including healthcare and life sciences (down 57 per cent from Q4 2024), financial services (down 46 per cent), technology and media (41 per cent) and professional and business services (29 per cent).
RSM partner Hywel Pegler said it was “no surprise” that deal volume dropped in the wake of a very active Q4, with private equity firms "frontloading at the end of 2024 to get ahead of tax changes”.
However, the trend wasn’t simply confined to the UK market, with US private equity deals falling 18 per cent from 1,740 in Q4 2024 to 1,435 in Q1 2025, while European deals fell from 1,707 to 1,256.
RSM Head of Private Equity Stuart Clowser said: “Deal activity has reduced significantly in Q1 2025, and the real question is when deal activity will bounce back.”
While RSM’s analysis found that private equity firms continue to come under pressure to increase their activity on both the buy and the sell side, the figures suggest that investors are instead choosing to be more cautious in the face of persistent economic and geopolitical uncertainty.
Private equity funds continue to sit on huge sums of unspent capital amassed over the last few years as they have undertaken lower levels of activity. On the sell side meanwhile, many firms have held onto investments for longer than their usual hold periods and, while coming under growing pressure to sell, face taking a hit on multiples.
Stuart Clowser suggested that private equity firms may need to become more acclimatised to embracing risk in their M&A transactions, saying: “In this challenging economic environment, private equity firms need to adapt and become comfortable in investing in businesses with some form of risk.”
He continued: “This involves taking a calculated approach to acquisitions. To derisk such opportunities, firms are focusing on industries that they are specialists in and where they have a proven track record, so they are best placed to address and overcome any specifically identified risks.”
A recovery in private equity activity is likely to be driven by mid-market deals and bolt-on acquisitions
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