Pantheon Ventures Imogen Richards on deal performance scrutiny and the liquidity squeeze facing PE firms

In this excerpt from our 2025 European M&A Outlook Report, which features insights from 12 leading European dealmakers, Imogen Richards, Partner and Head of Primaries at Pantheon Ventures discusses the challenges, competition and conundrums that private equity (PE) firms face in 2025.

What do you see as the main challenges facing PE firms in 2025?

The industry faces a range of issues for 2025. I would say the first significant challenge relates to fundraising. There has been a real bifurcation in the market between the ‘haves’ and the ‘have nots’ in recent times, and it will be interesting to see how that plays out in terms of fundraising. We may see an increase in spin-out groups, for example. Talent retention is also going to be an issue for struggling organisations.

We, as LPs, pay close attention to how GPs act under distress. One major impact is that groups are becoming more entrepreneurial in how they raise money, and we are seeing an increase in co-investments and seeded primary funds as a consequence.

The second major challenge is around the performance of deals carried out since 2021. GPs who potentially overpaid for assets in a environment have been able to hide behind the excuse that it is too early to judge their real performance. This excuse will start to wear thin in 2025, and it will be interesting to see how this plays out within the industry.

The third set of challenges is around distributions and demand for liquidity. We have lived through a period of significantly lower distributions, and investors now need the money back. While the incentives are there for distribution taps to be turned on, I do not think we are going to be bathing in liquidity just yet. This dynamic has led to an active secondaries market as investors seek out liquidity – a trend I expect to continue in 2025.

How do the challenges facing PE firms differ from those facing corporates?

The main difference is that corporates are not under pressure to fundraise. They are, however, more impacted by market trends such as interest rate movements. Another key difference is their attitude to the creation of synergies, as corporates are thinking how they can build synergies with their existing assets. This could result in a situation in which a corporate pays more for an asset due to potential synergies on offer. Given their relatively longer term hold periods, corporates are not creating the same types of returns for their investors as a PE firm would be required to do. For this reason, it could be said that corporates have a greater dealmaking advantage.

However, they are hindered by macroeconomic factors such as fluctuations in interest rates. A slew of national elections took place in 2024.

How do you feel this will affect European PE activity going forward?

While PE does not operate in the more volatile environment of the public markets, there are some near-term implications which affect our industry. The main implication surrounds interest rates. When the debt markets are cheap, there is a greater incentive to do deals. When the debt becomes expensive, deal activity definitely drops. Investors do not like instability and the unknown.

Periods of political volatility, for example in the first year of Trump’s administration, could spook the markets and have knock-on implications for dealmaking. On the other hand, Trump’s slightly freer approach to carrying out business may open up more opportunities for investors. Only time will tell.

Have you seen valuation multiples drop over the past year? If so, has this led to a mismatch in price expectations between buyers and sellers?

We saw around a 1.4x drop in the average EV/ EBITDA multiple in 2023 from the highs of 2022 and this increased slightly to an average of 11.0x during 2024 vs 11.9x in 2022.

A mismatch in expectations between buyers and sellers has definitely been present in the market, yet the gap is beginning to narrow. This is partly down to prices increasing, as well as sellers adjusting their expectations to more normalised pricing levels.

GPs are experiencing pressure from investors to return capital, and there is a real focus on how much cash they are distributing. The large amount of dry powder in the market makes it difficult for GPs to sit on their cash. Investors are starting to question why they are raising so much money in the first place, if they are not investing it.

Why are they paying management fees on that capital, if it is not being invested? This pressure to put dry powder to work will help narrow the valuation gap further.