PE Lending 'Worse Than 2008' Amid Exit Drought
An active M&A banker stated that the current private equity lending environment is worse than in 2008, characterized by an exit drought rather than the asset blowups of the GFC. This sentiment is echoed in a Bain & Company report, which notes PE is in a "new era" where value creation depends more on operational improvements than leverage. Major PE firms are also struggling with exits in China due to lower valuations.
- Private equity is grappling with a significant backlog of unexited companies, with an estimated 32,000 unsold assets globally, valued at approximately $3.8 trillion. The average holding period for buyout-backed companies has extended to about seven years, a notable increase from the five to six-year average seen between 2010 and 2021. - The exit market showed signs of life in 2025, with global PE-backed exit values rising 47% to $717 billion, largely driven by a boom in corporate M&A. However, this activity was heavily concentrated in mega-deals, with 13 transactions of $10 billion or more accounting for 69% of the growth in deal value. For the broader market, especially mid-market assets, liquidity remains constrained. - Fundraising has become increasingly challenging, with capital concentrating among the largest, most established managers. In 2025, funds larger than $5 billion accounted for a significantly larger share of fundraising compared to five years prior, while funds raising less than $500 million saw their share decrease. This has made it particularly difficult for first-time and smaller funds to attract capital. - In a shift from the pre-2022 era, value creation is now predominantly driven by operational improvements rather than financial engineering. With higher interest rates limiting the effectiveness of leverage, firms now need to achieve an estimated 12% annual EBITDA growth to generate a 2.5x return, compared to just 5% previously. - The Technology, Media, and Telecom (TMT) sector remains a primary focus for private equity, accounting for the largest share of global PE investment in 2025 at $654 billion. Landmark take-private deals, such as the $55 billion acquisition of Electronic Arts, underscore continued conviction in the sector, with deal values rising 49% in 2025 even as volume remained flat. - The private credit market has become a dominant force in financing leveraged buyouts, with direct lenders funding a significant portion of deals. This market has grown to between $1.5 and $2 trillion, rivaling the size of the broadly syndicated loan market and providing flexible capital solutions amidst tighter bank lending. - The IPO market began to reopen as an exit route in 2025, with PE-backed IPO exit value nearly doubling from the previous year. This was largely driven by a 148% increase in large IPOs (over $2.5 billion), indicating improving public market sentiment for high-quality, scaled assets. - Valuation gaps between buyers and sellers, which stalled dealmaking, have started to narrow. After a period where exited assets were sold at lower multiples than those still held in portfolios, the median PE-backed company in 2025 exited at a 0.3x turn higher than the valuation of held assets, signaling a move towards a more normalized pricing environment.
