The Carry - Issue #05 - PE Crunch Time

Welcome to this week’s edition of The Carry, the weekly newsletter delivering only the most interesting stuff from mid-market PE directly to your inbox.

Estimated Read Time: 6 minutes

Investment Theme of the Week: Exit Obstacles, Fundraising Woes, and a Changing Industry Landscape

We’ve touched on this topic a few times over the past couple weeks. But wanted to dive a little bit deeper into what’s actually going on with the mid-market PE space right now.

In one word: turbulence. Exits are few and far between. LPs are tightening purse strings. And it feels like widespread consolidation is on the horizon. Let’s break it down.

Exit doors are stuck shut

Firms are being forced to sit on unsold assets (about $3.6 Trillion, with a “T” worth, according to Bain & Company). Many of these investments were made during the buyout boom in the early 2020s. But firms are hesitant to sell in today's shaky market. So the plan is to hold and hope for better returns down the line.​

Fundraising fatigue setting in

Now let’s look at the other side of the “no exits” coin. Since firms aren’t unloading assets, cash isn't flowing back to investors. Which makes fundraising (from those same LPs!) a tough sell. Quick stat: global PE fundraising dropped to $1.1 trillion in 2024, down from a $1.8 trillion peak in 2021. And the average timeline on successful raises? A record 19 months last year.​

Continuation Funds: The Pressure Valve

The result of the combination of no exits and no fundraising? Enter continuation funds. Which, if you’re unfamiliar, are basically a workaround where firms raise capital to continuing managing assets they would have otherwise looked to exit. This gives them more time for value creation as they wait for the exit market to bounce back. These funds have become a significant part of the secondary market, accounting for 45-50% of deal volumes recently. And just to name a few names: firms like JLL Partners and PSG have both raise $1B+ continuation funds in the last several months.

Survival of the fittest

So what happens next? Obviously, the current climate favors the big players who still have the pull to raise cash. Smaller funds that can’t raise will struggle. And the longer this goes on, the more smaller firms will have to consider mergers, or even exits. So the industry as a whole could be in for a real shake up in the near-term.

The bottom line

PE firms are in a tight spot, juggling delayed exits, tough fundraising, and a market on the brink of consolidation. Don’t be surprised if consolidation funds and mergers become more of the norm over the next 12 months.
(fnlondon.com)

Mid-Market M&A Scorecard

Deal Flow

• Slowdown in buyouts: Private-equity buyout activity has significantly slowed at the start of 2025 due to economic uncertainties concerning jobs, inflation, and tariffs. ​marketwatch.com

Fundraising Trends

• Regulatory shifts: Washington's new leadership and the SEC plan to allow more retail investors into private markets, potentially unlocking new capital sources for private equity. ​wsj.com

Valuation Trends

• FCA's valuation concerns: The UK's Financial Conduct Authority has warned private markets firms to improve the management of valuation conflicts, emphasizing the need for more independent processes, especially in volatile markets. ​fnlondon.com

Quick Hits: Other Notable Deals & Industry Moves

• Emerging PE founders: A new wave of millennial private equity founders is emerging, motivated by potential rewards despite leaving secure, high-paying jobs for startup ventures in a highly competitive market. ​fnlondon.com

• Bain and CC Capital's bidding war for Insignia: Bain Capital and CC Capital have each submitted $5 per share bids for Australia's Insignia Financial, valuing the wealth manager at approximately $3.35 billion. This bidding war underscores the intense competition in the mid-market PE space. ​theaustralian.com.au

• Sycamore Partners nears $10B Walgreens acquisition: Sycamore Partners is close to finalizing a $10 billion deal to take Walgreens Boots Alliance private, reflecting private equity's continued interest in large-scale retail investments. ​nypost.com

The Exit

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

We broke down why PE firms are struggling to exit deals, how continuation funds are keeping portfolios afloat, and why smaller firms might struggle during the fundraising drought. Plus, we highlighted key moves in mid-market PE, including Bain and CC Capital’s bidding war, Sycamore’s potential Walgreens acquisition, and the FTC’s attempt to block GTCR’s latest deal.

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.