A UK Private Equity market review: trends for 2025 and reflecting on 2024

In 2024, UK deal activity was relatively stable, but interest rates and geopolitical tensions meant that investors continued to adopt a discerning approach. The mid-market was more resilient than the large-cap space, albeit with differing dynamics across sub-sectors. For example, appetite for tech-enabled companies with strong recurring or predictable revenues was fundamentally strong.

Deal flow also rose in some areas which had previously seen lower volumes, such as travel, as management teams were better able to stand behind forecast growth assumptions. The Bank of England’s reluctance to reduce interest rates allied to inflationary levels affected leverage capacity and meant that alternative lenders and debt funds were credible sources of financing.

We believe there will be cautious but steady positive momentum in 2025 with wider factors including potentially lower interest rates, increased political stability and the UK’s relatively stable regulatory environment.

PE houses with a clear investment hypothesis in niche sub-sectors and the agility to navigate debt markets will have a competitive edge. Well-structured financing and a disciplined approach to valuation will remain essential, with detailed due diligence undertaken to address key questions.

View our Deals Market Review

Private equity investors placed a real emphasis on working capital management in 2024 in response to increasing volatility in supply chains and high energy costs. This trend is likely to persist in 2025 with investors scrutinising companies’ cash conversion cycles, inventory levels and quality of the debtor book. Businesses will need to ensure sufficient liquidity and address any disruption risks.

Operational due diligence also took on new prominence, with firms prioritising value-creation plans earlier in the deal cycle. Strategies for post-acquisition integration, cost optimisation and operational efficiency have become central components of deal underwriting. In addition, identifying carbon reduction opportunities will further enhance value.

Due diligence is set to evolve with increased focus on a business’s ESG credentials, corporate culture and cyber security. As climate-related reporting standards become more defined and stakeholders demand investments that deliver tangible wider reaching

benefits than purely financial returns, these factors will influence valuations and deal terms. The focus will be on specific risks rather than generic assessments, for example in-depth cybersecurity audits are likely to become a non-negotiable element of deal assessments.

The above factors reflect due diligence becoming more holistic as investors look beyond the balance sheet to other drivers of risk and long-term value.

Read our Global Risk Landscape 2024 report.

AI offers a myriad of opportunities to PE firms and their portfolio companies that include identifying acquisition opportunities, maximising the value of investments, accelerating due diligence and more. Proactive strategies regarding the use of advanced analytics and AI are integral to gaining a data-driven competitive edge. Machine learning models can be deployed to support quicker valuations, scenario planning and even predictive portfolio management. According to market research, firms that embraced and adeptly harnessed real-time market data, performance dashboards and predictive analytics were better positioned to identify inefficiencies and streamline post-acquisition integration.

Advanced analytics and AI are set to become core operational capabilities and strategic imperatives. Predictive analytics will inform deal origination and exit timing, while natural language processing will help assess market sentiment and competitive dynamics. Automation will be used to speed up portfolio monitoring and enhance decision-making across every stage of the deal lifecycle. Firms that fail to integrate these technologies risk ceding ground to digitally-savvy competitors with better insights and efficiency.

The new Labour government has changed the tax landscape with significant implications for the private equity industry. The Autumn Budget introduced several tax reforms including a wholesale reform to the carried interest regime from April 2026 and an increase in the tax rate to 32% from 6 April 2025.

This is just one of the broad changes with other changes announced to the non-domiciled and inheritance tax regimes which may have a major impact on the UK’s competitiveness as an international private equity hub. PE firms need to understand these changes in order to attract the best talent to raise funds and deploy capital.

As well as managing the rise in employers’ national insurance, the navigation of tax changes affecting portfolio companies will require careful management to avoid unintended tax exposures. For example, HMRC is focusing more on transfer pricing and larger PE-backed portfolio companies will face the continued implementation of the OECD’s Pillar Two rules, including the global minimum tax rate of 15%.

It will be a challenging year for CFOs and Heads of Tax at PE firms, as they come to terms with how the changes affect fund structures, portfolio companies and exit strategies. Transparent reporting, robust documentation, and informed scenario modelling will continue to be essential in successfully addressing the changing tax landscape. Firms that anticipate these shifts will be best placed to strengthen investor confidence and put themselves in the front seat for transactions.

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Businesses need to be aware of the revisions to UK Generally Accepted Accounting Practice (UK GAAP) which will be effective from 1 January 2026 and should start preparing for this immediately. These will require adjustments to opening equity balances to reflect the impact of prior periods and will also affect key performance indicators including EBITDA, covenants, metrics and remuneration schemes. Many management teams we have engaged with have limited understanding of the timing and implications of the upcoming changes.

The revisions increase the need for robust data collection processes and make assessments of leases and contracts necessary in order to determine the required adjustments. Management teams may not have the understanding or technical expertise to address these issues, but a lack of preparation could become a risk in transactions as financial compliance is scrutinised through due diligence processes. Specialist advice may be needed if there are multiple and/or complex contracts.

Portfolio companies should ensure they can collect and report data accurately, including historical data where applicable. This will not only aid compliance but also stand up to scrutiny during due diligence. Both buy-side and sell-side teams should incorporate assessments of UK GAAP readiness into their due diligence procedures to mitigate risks and identify potential synergies.