The Carry - Issue #04 - PE's Evolving Playbook

Welcome to this week’s edition of The Carry, the mid-market PE newsletter you wait by your email inbox for all week.

Estimated Read Time: 7 minutes (as promised)

Deal of the Week: Bain Capital’s Bid for Chemring

Bain Capital has made a £1.1 billion bid to acquire Chemring, a UK-based defense equipment manufacturer specializing in countermeasures and sensors.

• Why It Matters: The move highlights PE's growing interest in the defense sector, particularly in companies with specialized technologies and strong market positions.​

• The Numbers: The bid values Chemring at £1.1 billion, which is a premium over its current market capitalization.​ thetimes.co.uk

• Who Wins/Loses: If successful, pretty much everyone wins (except Chemring competitors). Bain gets a strategic asset in the defense industry. Chemring shareholders instantly benefit from the premium offer. And competitors may start to feel the heat, as consolidation intensifies.​thetimes.co.uk

Mid-Market M&A Scorecard

• Total M&A Activity: The numbers are in…global M&A deal value reached $3.4 trillion in 2024, a 12% increase from the previous year. This is welcome news because it shows a moderate rebound in dealmaking activities. ​mckinsey.com

• Valuation Trends: Middle-market companies continue to attract private equity interest due to their growth potential and more reasonable valuations compared to large-cap firms. ​

• Top Acquirers: Thoma Bravo launched a €1.8 billion fund targeting European mid-market software companies, signaling a strategic expansion into the region's tech sector. Also, similar to the PSG move toward mid-market software we talked about a few weeks ago. ​ft.com

• Biggest Exit: Not a specific exit, but an interesting note in the physician practice management sector. The end of 2024 showed renewed activity in the space, with private equity firms exiting investments through sales to multiple strategic buyers. Which is a strong sign of a market comeback for such deals. ​wsj.com

Investment Theme of the Week: Operations are becoming even more important

As we wrap up the second month of 2025, one thing is clear: the PE landscape is shifting. Interest rates are expected (or maybe we’re just hoping) to get a little bit friendlier, the economy is holding up better than expected (we think?), but exits and valuations have yet to bounce back. Which means firms are having to adjust their playbooks in real-time to keep up.

To sum it up: Money might be getting cheaper, but exits aren’t getting easier.

What’s Changing?

📉 Rates Are Coming Down (But Not That Fast)

• Lower interest rates should mean more leverage for buyouts, but banks aren’t exactly throwing money around yet.

• Expect cautious deal structuring and a preference for targets with strong cash flow to offset risk.

📈 GDP Growth Is Holding Up

• A stronger economy = better-performing portfolio companies = better exits (in theory).

• But firms still aren’t rushing to sell—they’re holding longer, optimizing operations, and waiting for a market rebound.

Who This Affects the Most?

👀 PE Firms → The “buy, hold, and hope” model won’t cut it. Operational expertise is the new differentiator. Expect firms to focus more on adding value and less on financial engineering.

💰 LPs → Investors need to rethink their return timelines. Exit windows are slower, distributions are lower, and fund managers have to prove they can still generate alpha in this environment.

🏢 Target Companies → Getting PE funding? It’s gonna take more than a good pitch deck. Firms are way pickier now—strong margins, recurring revenue, and efficiency are must-haves.

Big Picture: Smart firms are adapting in real time

Private equity isn’t slowing down—it’s being forced to be more strategic. The best firms aren’t just sitting around waiting for the market to bounce back. They’re holding on to assets, raising continuation funds, and optimizing how PortCo operations.

The Exit

That’s a wrap for this week’s The Carry! 🏁

We broke down Bain Capital’s move into defense, covered the latest M&A trends and valuations, and explored how PE firms are adapting to changing market conditions.

Got thoughts on this issue? We’d love to hear them! Hit "reply" and let us know what you liked, what you didn’t, or what you want to see more of. The Carry is built for mid-market PE pros like you—and your feedback makes it even better.

Ok, talk to you next week. 🚀

📢 Disclaimer: The Carry is for informational and educational purposes only and should not be considered financial, investment, legal, or tax advice. Nothing in this newsletter constitutes an offer, recommendation, or solicitation to buy or sell any financial assets. Private equity investing is complex and involves significant risk.

Always do your own research and consult with qualified financial professionals before making any investment decisions. The Carry and its authors assume no liability for financial or investment outcomes based on the information provided.