PE – 2025 Mid Year Update

Note: insights synthesized from KKR & Bain Mid-Year Reports, and PitchBook

 

Key Macro Implications for PE

  • Rate Regime Reset:
    The “4% world” is here to stay—meaning higher baseline rates for Fed Funds, inflation, and bond yields. There’s no going back to ZIRP. As a result, capital has a real cost again, and deal structures must reflect tighter margins for error.
  • Multiple Compression Is Real:
    Private asset valuations are resetting. Sponsors should not underwrite to multiple expansion. Value creation must now come from fundamentals, not financial engineering.
  • Capital Scarcity and Credit Tightness Create Opportunity:
    Financing markets are more selective. Sponsors with real operational value-add and conservative underwriting are best positioned to thrive. Credit markets reward strong fundamentals and margin discipline.

 

Investment Themes & Tactical Plays

  • Own What You Know:
    Focus on sectors where you have an edge—deep domain knowledge and operational expertise matter more than ever. Specialization is outperforming generalist approaches.
  • Secular Trends Over Cyclical Bets:
    Favor businesses aligned with long-term tailwinds like AI enablement, reshoring, automation, and digital transformation—especially where they reduce labor or infrastructure burden.
  • Buy Complexity, Sell Simplicity:
    Many are targeting mispriced or misunderstood assets where they can apply operating leverage to simplify, scale, and exit with a compelling growth narrative. Complexity is an opportunity for differentiated PE investors.

 

Implications for Tech PE

  • Valuation Discipline Is a Differentiator:
    With multiple uplift less likely, underwriting must center on GTM & Operational Improvements: organic ARR growth, margin expansion, retention, and capital efficiency.
  • Operational Execution Is Essential:
    Growth will increasingly come from execution: GTM strategy, pricing, retention, and cost optimization, not just from M&A rollups.
  • Capital Efficiency Beats Growth-at-All-Costs:
    High-efficiency SaaS models with strong GRR/NRR and positive unit economics will outperform in both private and public markets.
  • AI Tailwinds Are Real, but Focus on Substance:
    Real opportunity lies in software that drives productivity and cost reduction (e.g., AI-native infrastructure orchestration or automation platforms), not hype-driven front-end tools.

 

What This Means for Tech PE Strategy

Tactical Takeaways

  • Dealmaking posture: With trade uncertainty and volatility creating repricing opportunities, emphasize sponsor‑to‑sponsor and resilient tech verticals not exposed to tariffs.
  • Liquidity management: Design exit strategies that prioritize full realizations, use secondaries where appropriate, and manage LP expectations proactively.
  • Value creation playbook: Focus on hands‑on GTM execution, margin boosting levers (pricing, automation, retention), and capital‑efficient scaling rather than modeling returns on leverage or expecting re‑rating.
  • Data‑driven portfolio oversight: Invest in tools and infrastructure that monitor performance in near real time, stress‑test scenarios, and enable agility in response to shocks.

Strategic Implications

  • Underwriting must be grounded in intrinsic value or EBITDA growth—not multiple arbitrage.
  • Differentiated edge: Use your tech domain expertise to build operational alpha where others rely on financial structuring.
  • Portfolio agility: Prepare to act decisively when macro conditions shift—whether seizing dislocations or executing exits.

For Tech PE Equity Value Creation

  • Double down on GTM transformations, pricing improvements, retention, and cross-functional commercial discipline.
  • Underwrite based on operational alpha and capital-efficient revenue growth, not leverage or multiple expansion.
  • Look for overlooked, complex businesses that you can transform through hands-on operational value creation and GTM improvement.

 

P.S. On a positive note / outlook for 2H’2025:

John Gray:

  • “We believe the dealmaking pause is behind us,” Blackstone President and COO Jonathan Gray told shareholders during the firm’s Q2 2025 earnings call on Thursday morning.
  • “The environment we see emerging—of lower short-term interest rates, less uncertainty and continued economic growth, combined with pent-up desire to transact—is the right recipe to reignite M&A and IPO activity”.
  • The challenges haven’t been unique to Blackstone, with dealmaking and exit activity down across the private market landscape. Still, the firm believes it is well-positioned to see an acceleration of net realizations in the back half of 2025 and into 2026, armed with a robust pipeline for exits.
  • “We’ve got the busiest pipeline we’ve had since 2021 of potential IPOs,” Gray said. “Yes, you do need a level of terra firma, but if this holds, I do expect we’ll see a step-function increase in transaction activity and on the realization side.”(Source: https://pitchbook.com/news/articles/blackstones-jon-gray-dealmaking-pause-is-behind-us)

 

 

 

 

2025 Mid-Year Outlook & Report, focused specifically on what matters for Tech PE (Source: KKR & Bain)

2025 Mid-Year Market Outlook – Implications for Tech PE

Summary

The 2025 PE landscape is defined by higher rates, slower exits, tighter capital, and an urgent shift from financial engineering to operational alpha. Tech PE investors must now create value through execution—specifically GTM transformation, capital-efficient growth, and real EBITDA expansion.

Macro Context

  • The “4% World” Is Permanent: Interest rates, inflation, and yield curves have structurally reset. Capital has a cost, leverage is constrained, and underwriting must reflect intrinsic value—not re-rating.
  • Liquidity Crunch: ~$3.6T in unrealized NAV, with >50% held >4 years. Distributions fell to ~11% of NAV (lowest since 2008), stalling LP recycling and delaying new fundraising.
  • Multiple Compression: Market no longer rewards growth-at-all-costs or rollups with high leverage. Buy-side discipline has returned.

Strategic Priorities for Tech PE

1. Operational Execution as Primary Value Driver

  • Margin expansion (via pricing, retention, automation) must now drive returns.
  • GTM excellence is non-negotiable—focus on pipeline velocity, CAC efficiency, customer success, and RevOps.
  • Commercial execution > financial engineering.

2. Focused Underwriting and Diligence

  • Anchor returns in capital-efficient growth, not hopeful terminal values.
  • GRR, NRR, CAC payback, and unit economics are key to entry modeling.
  • Take-private and complex carve-outs are more attractive than broad auctions.

3. AI and Productivity Tailwinds

  • Invest behind AI-native or AI-augmented software that improves cost structure, infrastructure orchestration, or GTM motion—not hype-driven copilots.
  • Prioritize companies enabling automation, compliance, and workflow intelligence.

4. Portfolio Liquidity & Exit Strategy

  • Exit pacing has slowed; prepare for longer holds or partial realizations via secondaries.
  • Build exit flexibility through institutional-grade reporting, simplicity of story, and EBITDA quality.

5. Speed, Specialization, and Sector Focus

  • Specialization is outperforming generalists—own your vertical and playbook.
  • Invest in operational systems to accelerate diligence, track KPIs in real-time, and react faster to macro shifts.

Recommended Tech PE Tactics

  • Double down on value creation via GTM: pricing optimization, retention improvement, pipeline scale.
  • Underwrite to efficiency and execution—avoid assumptions of re-rating.
  • Deploy dry powder into dislocated, complex, or misunderstood assets where you have edge.
  • Position for flexible exits and deepen LP relationships as fundraising cycles lengthen.