ECI’s 2025 private equity mid-market predictions
ECI Partners, the leading mid-market private equity firm, which recently announced its fifth investment of the year, gives its 2025 predictions for mid-market private equity:
ECI in 2025
Tom Wrenn, managing partner at ECI, comments: “We’ve had a very busy year, including exchanging four platform deals in the space of six weeks. It has been a fantastic example of how the ECI team, technology, processes and network all combine to allow us to invest in exceptional management teams. 2025 is a new year and the team are now excited about what is next, and we will be fully recharged and ambitious for deploying capital in the new year.”
UK – a more stable environment
Wrenn continues, “Currently the UK is a much more stable environment compared to the rest of the world, or even to last year. The after effect of a definitive general election win by the incoming government is good for general investment macro stability. The government is cracking through its agenda, which regardless of whether you agree with it or not, is enabling the PE industry to plan ahead.
Interest rates are starting to come down, albeit slowly, and this has been calming for businesses in terms of debt cost and leveraged buyouts. CGT changes increasing at a sensible rate demonstrate the government is consulting with business and industry to get it right, and thankfully hasn’t led to business owners halting sales.
The political and economic background should be positive for the deal environment in 2025, but it’s important not to ignore the movement of global tectonic plates such as the situation in Russia, Ukraine and the uncertainty around Trump’s economic agenda when he’s in power.”
Competition for capital will remain high, and concentrated in fewer funds
Jeremy Lytle, Investor Relations Partner for ECI Partners comments: “It’s been a challenging few years for fundraising as the same amount of capital being raised is now concentrated in far fewer funds. One in three funds are now closing below target* and the average time spent fundraising is now double what it was in 2019. Behind all these challenges is a lack of exits – realisations have been muted since 2022 when interest rate hikes started, so LPs’ budgets haven’t been replenished with fresh capital for new funds.
Even if things do improve, PE firms can’t rest on their laurels – we’re fortunate that our fund performance has been very strong, but competition for capital is high and it’s never been more important to have a clear, differentiated offering and a repeatable playbook for generating strong returns.”
Delivering DPI for investors will drive deal making in 2025
Wrenn states: “We anticipate a continuing uptick in deal flow in 2025 as investors continue to call for more liquidity. Desire to deliver DPI for investors has led to some PE companies selling off their top businesses, often using continuity vehicles to do so, and this has driven pricing but not market volume. There will likely be a greater range of businesses coming to the market in 2025, which may lead to a normalisation of pricing, but also more failed processes.
It also will lead to more LPs thinking about fund and exit management from PE firms – looking for GPs who are not hanging on to average performing businesses for too long, or selling their stars too early, who are instead focusing on the deals that really have potential to drive the overall fund return. These factors, alongside a desire for co-investment, will likely be three key decision makers for LPs looking to deploy capital in 2025.”
In terms of M&A activity, Skyler ver Bruggen, investment director at ECI, comments: “Advisors are still reporting a high number of sales mandates, although with some slowdown in workforce heavy sectors that have been impacted by NI increases. Despite the promise of no more tax increases for businesses there is still uncertainty that this might change, which could accelerate some sales processes, alongside the usual drivers of enabling succession and retirement.”
Growth sectors in 2025
Tom Wrenn observes: “We believe the businesses that have the most growth potential will be those focused on business efficiency or trust. Examples in our portfolio include CMap and Ciphr, which are part of the digitisation and automation of the economy, for greater business efficiency. A good example of seasoned advice and experience is our new portfolio company, IGG, in the pension space, where the strength of their advice is paramount. Insurance Insider, another recent deal, is also a good example of a company that is a trusted brand in a world where AI and deep fake means we need companies whose news and intelligence you can trust.
Businesses with a global reach will continue to be in high demand in 2025, as will the private equity funds that can help them to expand internationally. Many of our portfolio companies have delivered European and US acquisitions and continue to expand into both markets. While we don’t know how far the new regime in the US will go on tariffs, it is likely to have a more limited impact on software and services businesses. In fact, anticipated de-regulation means I think we’ll likely see more M&A opportunities in the US over the next four years.”
Tsvetelina Delcheva, origination manager at ECI, adds: “Looking at Europe specifically, demand for tech businesses will remain strong, so we’re more likely to see more deals in the Benelux and Nordics where the tech sector plays a major role in the economy. These markets are leading in sectors enabling automation, data analytics, and cybersecurity. Many of the resilient tech businesses in these regions are globally-minded, and are attracting international investments, with subsector experience rather than geographical proximity being one of the most important factors for management teams when selecting an investment partner.”
