After two years of muted dealmaking by private equity sponsors, we have seen a healthy pickup in M&A and IPO activity and expect more momentum through next year.
First, measurable M&A metrics have been trending higher over the last couple of months, including pitch activity (both pitches that have occurred and those already scheduled), number of deals signed, number of buyers at the “finish line”, and number of buyers pre-empting processes. We anticipate pitch activity and process launches to accelerate into year-end. Another good leading indicator: multiple buyers have emerged for high-quality businesses at levels not seen since 2021, and deals are being signed.
Second, what we see and hear from you:
- Changing mood at Investment Committees: However you want to characterize it – risk on, leaning in – sponsors are more aggressively pursuing companies. We have witnessed four processes in the last month with pre-emptive sponsor bids, including re-bids in some cases. Higher-quality businesses are attracting multiple potential buyers at the finish line, and we are also seeing multiple buyers for most processes, compared to the “1 ½” buyers at the finish line typical of the past two years.
Macro factors, such as lower volatility, increased economic confidence, and declining interest rate expectations, have certainly provided a tailwind. However, the most critical factor driving activity is a sponsor’s conviction behind their investment thesis. Private equity is bringing its traditional operational toolkit and leveraging AI, which is in the early innings of driving value. M&A processes need to incorporate these value drivers, as our PE clients are actively deploying AI across non-tech industries to bring significant margin uplift. While the pressure to deploy capital is always present, given the J-Curve, sponsors will only do deals when they make sense.
- Sellers are becoming more active: Sponsors are increasingly gearing up for exits, driven by portfolio companies growing into valuations (primarily through growth versus multiple expansion), and narrowing bid-ask spreads. Valuations are approaching levels that enable sponsors to achieve solid multiples on invested capital that are at or often above their marks. Meanwhile, the “bid” side has moved upward to levels that selling sponsors were targeting one to two years ago. The average hold is currently at a record period, as many sponsors delayed exits for the last two years while waiting for markets to improve. When you combine the growing number of sell-side transactions that haven’t been completed with the increased availability of portfolio companies held for six years or more, you have a recipe for a lot of actionable deals.
To capitalize on these opportunities, consider revisiting busted auction logs, surveying long-in-the-tooth portfolio companies and sponsors focused on DPI, and attending Jefferies’ private company conferences this Fall. There is a high probability that more companies will come to market over the next twelve months, some through more bespoke and targeted M&A processes.
Dovetailing with our outlook for accelerating private equity activity, we also see a resurgence in large-cap LBOs and a wide-open IPO window.
- Large-Cap LBO Resurgence: The last few months saw several $3+ billion deals and five at $7+ billion. Many followed the “updated” M&A/sponsor playbook for syndicating large equity checks, which includes:
- Forming consortiums.
- Identifying sovereign wealth funds and LPs early to play critical partner roles.
- Generating equity co-investment demand through rapidly growing retail channels.
- Tapping into record depths in the preferred market.
- Achieving robust financing terms with competitive processes amongst banks and between direct and broadly syndicated loan markets.
Jefferies recently deployed this playbook on two transactions: we served as Lead Financial Advisor for PCI Pharma in its equity recapitalization and Joint Financial Advisor to STADA Arzneimittel, representing the largest European LBO M&A deal of 2025. In this market, there is no shortage of banks and direct lenders competing for $5+ billion financing structures. Other drivers of the large-cap LBO resurgence include abundant dry powder and actionable opportunities (especially in the public equity markets). While the IPO market is now wide open, a sizable backlog in the IPO pipeline remains, which could prompt sponsors to pivot to M&A exits.
- The IPO market we have been waiting for: Global equity markets are at or near all-time highs, volatility is at sustained low levels, and recent IPO aftermarket performance has been exceptional and broad-based: Average U.S. IPO aftermarket performance has been 30%+, with sponsor IPO performance even better. We have waited three years for this IPO market, with Jefferies CEO Rich Handler and President Brian Friedman recently writing, “the stars are probably as aligned as one can hope to achieve successful outcomes.” Jefferies Macro Strategist David Zervos recently penned “The Uncertainty Hoax,” in which he said, “For the naysayers who have completely misjudged financial markets this year, the word ‘uncertainty’ has become a constant cover for failure.”
Two final macro tailwinds are bolstering the case for continued optimism.
- AI has arrived as a meaningful value generator: Private equity has always been a clear leader in operational value creation, and now artificial intelligence has arrived as a major value driver. The use and benefits of AI are no longer just speculative or aspirational in portfolio companies. It now provides real value and enhances profitability well beyond summarizing information. Companies are increasingly utilizing AI to support pricing models, optimize logistics and inventory management, and uncover new growth opportunities. AI is driving a more fundamental change in businesses of all sizes and sectors than many on Wall Street realize.
- Retail has the potential to transform the private equity industry dramatically. Anytime an asset class has a dramatic influx of capital, there will be opportunities and pressures. In the coming months and years, an influx of retail capital will create alternative paths for sourcing LP equity co-investments and also for exits, alter the M&A landscape (much like the continuation fund product which Jefferies remains quite active with), challenge private equity in their deal sourcing to deploy capital, and heighten the importance of operational value-add. Private equity will adapt.
We look forward to a busy remainder of the year. Our team consistently strives to add value through creative ideas and content, innovative structures and financing solutions, and exceptional execution.
