Narrowing valuation gap, LP pressure lift EU, UK private equity exits - S&P Global

Private equity exit activity has deteriorated sharply into 2025, marking a dramatic reversal from the optimistic outlook at year-end 2024. According to S&P Global Market Intelligence analysis of Preqin Pro data, PE firms completed only 473 exits in the first quarter of 2025, representing a collapse to the lowest level in two years. The aggregate exit value of $80.81 billion similarly marks the weakest quarterly performance since Q1 2023. This contraction is particularly striking given that full-year 2024 had recorded a 5% increase in annual exit volume, suggesting that year-end momentum failed to sustain into 2025.

The fundamental impediment to exits centers on divergent buyer and seller valuations. Jeremy Swan, managing partner at CohnReznick's financial sponsors practice, characterized the situation bluntly: "The volume of deals in process is very strong. It's just that these deals aren't closing. They're moving slowly. Buyers are being cautious." This valuation gap—where sellers maintain elevated price expectations while buyers demonstrate reluctance to meet those marks—has effectively frozen deal closures despite robust pipelines. Tariff-related policy uncertainty has intensified buyer hesitation, further widening the gap between asking and bid prices across sectors and geographies.

The exit slowdown compounds mounting pressure on fund managers from limited partners demanding accelerated capital distributions. Distribution flows have slowed to minimal levels in recent years, creating a critical need for PE firms to harvest investments and return capital. This LP pressure, combined with lower distribution rates, has dampened fundraising prospects for 2025 vintage funds, with placement firms reporting that some fundraising campaigns are being deferred by one to two months. The combination of depressed exit activity and extended holding periods is creating structural strain across the PE industry.

European and UK markets face additional headwinds beyond valuation gaps. The UK market trades at approximately 12x multiples compared to 14x in Europe and substantially higher multiples in the United States, creating a valuation discount that compounds exit challenges. Combined with documented liquidity pressure and extended holding periods across European PE portfolios, the region's PE firms are increasingly selective about acquisition targets, concentrating on larger deals that present more viable exit prospects. Industry participants report that PE funds—despite substantial dry powder—are deliberately pausing acquisition activity to avoid adding companies to already strained portfolio bases that lack clear exit pathways.