UK private equity market ‘changeable and uncertain’ throughout previous year

Pinsent Masons PE MA Trends Report 2025Though given that over the last decade we have experienced Brexit, a pandemic, an energy crisis, war in eastern Europe, inflation, and higher interest rates, it is therefore perhaps unsurprising to see the market struggle to coalesce around what may be ‘normal’ or even the ‘new normal’.

Transaction volumes ebbed and flowed from quarter to quarter. While the UK election and the change of government spurred sellers into action ahead of the Autumn Budget amid fears of a sizeable increase in the effective rate of capital gains tax, the final quarter slowed a little, perhaps as a consequence of the economic levers pulled by the chancellor to generate elusive growth.

During 2024 there was a slight drop in the number of private equity deals executed, and an increase in trade/strategic transactions, though the trade figures naturally include bolt-on acquisitions by private equity-strategic buyers which, for a while now, have been very much part of the M&A landscape. There was also a notable trend of lower liability caps for warranty claims as more strategic buyers are getting comfortable with warranty and indemnity insurance products for their transactions.

Throughout the year deals took slightly longer to close, we saw longer deferred consideration periods, longer non-competes for restrictive covenants and an increased use of material adverse effect (MAC) clauses, all arguably reflective of the uncertainties seen across the market.

These uncertainties resulted in some friction or at least a greater appetite for ‘arm wrestling’ between buyers and sellers and would, on the face of it, indicate a buyers’ market. Despite this, there was a reduction in the number of deals where exclusivity was granted, indicating an environment more favourable to sellers. This could, however, also be due to buyers sensing they might be the only interested party, bidding just enough to keep sellers interested in pursuing negotiations and therefore both parties, perhaps reluctantly, ‘playing the game’ to see if a deal can be done. To cloud matters further, as was seen in Covid-era M&A, we have seen some transactions executed without exclusivity being granted where conviction bidders are prepared to incur adviser fees early and pre-empt highly competitive auction processes for certain types of assets, usually in sectors that are perhaps are more sheltered from wider economic uncertainty. These instances were fewer in number compared to late 2020 and 2021.

For buyers, continued market uncertainty meant deals were taking longer to close throughout the year, with buyers pushing for increased due diligence, capitalising on those opportunities where there may be reduced bidder appetite. We have seen potential buyers triaging early and deciding whether or not to proceed based on their competitive angle, or lack of it. With these buyers prepared to walk away earlier this sometimes meant the competitive dynamics changed as the process went on and to some extent favoured the bidders with the most staying power and, at times, leaving sellers with fewer options than they thought or hoped they might have at the outset.

On the warranty and indemnity (W&I) side we continue to see an increased uptake as a consequence of both the market maturing and the increasing number of specialists offering cover. There has also been a clear trend for cover offered at higher insurance limits.

Artificial intelligence (AI) also played its part in the market last year. While AI was not a primary driver of demand for investors last year, the use of AI is gathering pace across the machinery of deal making from assisting with efficiencies in the legal due diligence process - for example, contract reviews - to gaining underwriting insights in W&I markets. While investors are alive to the possibilities, the pace of change and clarity as to the return on investment for AI assets are, if anything, further complicating the due diligence process.

Emerging downside risk considerations are inevitable around the potential impact of tariffs and trade wars with some evidence that terms and W&I cover are already being considered to address this. However, with almost weekly changes in US tariff policy, it remains to be seen whether tariff concerns become a prominent feature of the market.

We are also seeing an increase in public to private transactions in the first two months of 2025 where listed assets are taken private either by private equity backed newcos or strategic buyers. This was expected given the relative political stability following the completion of 2024’s significant election cycle, greater predictability of interest rates and the broad and deep trend of continuing month-on-month outflows from public market funds - a trend which is exacerbated by take privates. It is unclear as at the time of writing what impact, if any, US tariff policy mentioned above will have.

In terms of exits, despite some green shoots in European equity capital markets, it would seem initial public offering (IPO) exits are not a top priority for mid-cap companies, though still a consideration for larger cap companies. The relative paucity of IPO exits has acted to reduce some liquidity and transactional activity at the top end of the market. Looking forward it may be a pivotal year for European equity capital markets, and the UK market in particular, given the high number of companies exiting the market via acquisition or change of investment exchange.

Download our PE M&A Trends report 2025 (36 pages / 6.36 MB)