As we launch into the next quarter century, there is much speculation about what the future holds for private equity (PE) as an asset class and driver in dealmaking. Momentum started to pick up in 2024 with the Fed announcing a series of interest rate cuts, and there was a sense of increasing certainty with the Presidential election now behind us. Now, everyone is eager to see what the new year will hold.
PitchBook analysts have released their 2025 US Private Equity Outlook, examining the trends that could redefine the market. One of the most interesting is the significant shift they are expecting in the IPO landscape this year. Their analysts are looking at the potential for PE-backed companies to capture 40% of all the IPO capital raised on major US exchanges this year. That would be a nearly 10% jump from the decade average, as well as a change in investor preferences.
Their data shows that since 2000, PE-backed companies averaged about 30.6% of IPO capital raised on major exchanges within the past decade, with a high of 54.2% in 2016 and a low of 3% in 2022. PE-backed companies reached approximately a one-third share of all IPOs in 2024, and Pitchbook is expecting that to be even greater in 2025.
In looking at the gains, they point to the focus on growth and profitability for PE-backed companies, as well as stable cash flows and successful capital allocation. They also tend to operate within sectors that have rational pricing and competition, providing predictable returns that make them appealing candidates for IPO investors. Coupled with the impressive stock performance of PE-backed companies recently, this puts them in a prime position for success this year.
There has also been recent coverage indicating that Wall Street banks are preparing for a rebound as bankers and analysts are anticipating a great deal of IPO announcements in the first half of 2025. With several PE-backed firms already filing IPO paperwork, all the speculation might actually come to fruition as PE firms are more eager to begin offloading some of their assets.
We see some risk if major US public market indexes encounter some kind of significant correction, leading to a more negative market sentiment. If this were to occur, the IPO window could close for a period of time until investor confidence returned, meaning PE-backed companies would again have to alter their IPO plans.
There are many factors at play here and a lot of moving parts. Everyone is closely watching to see if the new Presidential administration will loosen regulations, whether punitive tariffs will be imposed, the impact on inflation and interest rates, and what will happen with taxes. But cautious optimism definitely exists, and there does seem to be an opportunity to build on momentum here. We have all been waiting for a real return to IPOs, and 2025 could be the year that finally happens.
