In our recent webinar, “Investing in the Future”, expert panellists Lewis Bantin (Partner at ECI) and Viesturs Bemhens (Director at Fairgrove Partners) shared their perspectives on the pivotal developments that defined 2024 and the emerging trends set to reshape the private equity landscape in 2025.
Below, we’ve highlighted the key takeaways from this engaging discussion. To dive deeper into this topic, watch the full on-demand recording here.
Market Activity: Challenge or Opportunity?
After the investment surge of 2021-22, driven by quantitative easing, the market slowed in late 2022 due to factors like inflation, rising interest rates, and geopolitical tensions. By mid-2023, activity stabilised, but the market split into two: premium assets with higher prices and middle-tier investments facing more challenges.
Sector-specific trends are driving activity, especially in areas like software, accounting, and legal services. Competitive pressure and "fear of missing out" have led to aggressive bidding on top assets.
"Processes are extremely competitive. People are willing to pay a lot of money for good assets because there is capital to deploy. If you're not seeing enough IMs with good assets, there’s pressure to secure the ones that do come across."
- Viesturs Bemhens (Director at Fairgrove Partners)
Both panellists agreed that focusing on specific subsectors and leveraging the right partnerships and tools is essential to thriving in today’s competitive landscape.
Shifting Themes in Client Work
Industries like software, workforce management (especially in blue-collar sectors), and professional services have remained key, though interests have evolved. Both speakers highlighted that businesses become more appealing when they span multiple sectors. The office of the CFO, with its focus on multi-country payroll and accounts management, has been especially active.
Viesturs noted that market trends often follow a "snowball effect," with investments in one sector leading to others joining in. Lewis emphasised the importance of long-term relationships with management teams, often spanning several years, as part of their strategy to identify high-quality assets before competitors do. This approach enables them to capitalise on emerging opportunities at the right moment.
Outlook for 2025: Rebound or Steady Growth?
There is cautious optimism for 2025, with stronger, more diversified pipelines emerging in sectors like legal tech and CFO services. AI and large language models are playing an increasingly critical role in due diligence, shifting the focus from risk assessment to value creation. Additionally, AI is making a notable impact in areas like digital home insurance and virtual assistants, though proving its tangible benefits remains essential to avoid overhype.
The outlook for 2025 is reinforced by a more stable macroeconomic environment, with key factors like stabilised interest rates, easing inflation, and reduced political uncertainties paving the way for increased growth and activity. Deals that were once fueled by artificially low interest rates are now being replaced by opportunities that focus on genuine, long-term growth and profitability, aligning with market realities.
"Some deals simply didn’t work—they worked in a world of 0% interest rates but don’t work in a world where base rates are 5%. The hunt for genuine cash and genuine growth is important."
- Lewis Bantin, Partner at ECI
The uncertainty of last year that has likely been lifted is expected to contribute to slightly more activity in 2025.
Caution or Opportunity for Private Equity Investors?
Private equity investors have exercised caution in recent years due to market uncertainty. However, the flexibility to wait for favourable conditions or stronger proof points, such as AI's tangible value, is a key advantage of the sector.
Lewis noted that some deals from 2021-2022, priced at peak valuations, are now facing challenges, with reports suggesting tough returns for those vintages. Investors remain under constant pressure to deliver results, measured by DPI (Distributions to Paid-In). While aiming for higher returns (e.g., 3x or 4x), they may accept lower returns (e.g., 2x) to meet obligations and satisfy their limited partners.
Sectors to Watch in 2025
- The 3-Dimensional Office of the CFO: The evolving role of the CFO continues to create opportunities in multi-country payroll, accounts payable and receivable, and financial planning tools.
- Legal Services: The legal services sector is experiencing heightened interest, driven by increased complexity in compliance, regulation, and the adoption of technology to streamline processes.
- Well-being & HR Tech: Viesturs highlighted well-being as a key focus, particularly products like vitamins, mental health services, and employee benefits platforms. The demand in this sector, which grew post-COVID, continues to show strong promise. Bantin also pointed to HR tech as a promising area, noting its overlap with employee support while offering unique opportunities for growth and innovation.
- Cybersecurity & INFOSEC: Lewis emphasised the critical importance of cybersecurity and information management. This sector is increasingly vital due to rising risks and growing demand for robust protection solutions.
To hear more insights from our expert panel, listen to the full discussion here.
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