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Churchill’s survey of private equity firms suggests M&A is returning to normal levels
by Randy Schwimmer
Randy Schwimmer
Vice chairman
Churchill Asset Management
Senior PE executives are confident in both deal activity and returns
Inflection points are hugely important in capital markets. Being alert to subtle shifts in interest rates (high to low), or economic cycles (growth to recession), enables astute asset managers to lean into investment strategies effectively.
The challenge today is that unpredictable trade policies have created false signals, particularly in liquid markets where traders can pivot on a dime. Headline risk increases the whipsaw effect of rapidly changing prices in a confusing environment. “As good as our stats are, they just weren’t made for these kinds of very large moves in policy that cause a knee-jerk reaction,” KPMG’s chief economist, Diane Swonk, reports. “It makes it even harder to read the tea leaves.”
Private capital, which has fewer facets exposed to macro dynamics than other markets, has been a boon to institutional and wealth investors for price and valuation stability. But visibility on what moves the asset class isn’t entirely public and therefore invites suspicion.
Shining a light on private equity
A good example of this is private equity dealmaking. The slowdown in global M&A since 2021 was real, with financing costs hampered by central banks’ rate hikes. But its comeback is real as well. Slowly, as rates peaked in 2024, corporate buying and selling is recovering. PE transactions, especially in the middle market, are less about investment bank auctions and more about strategic acquisitions by operating partners with deep knowledge in niche markets.
Being an LP in over 300 middle market private equity funds (and on the advisory boards of 200) gives Churchill a unique window into the investing environment. Our recent survey of 164 PE executives revealed new confidence in both deal activity and returns. One quarter of those surveyed believe M&A will return to normalised levels as early as the second half of this year. More than half think that will happen sometime in the first half of 2026.
All M&A is not created equal. The best middle market PE investors don’t rely on large investment bank-generated auctions. Their operating partners have decades of experience searching for industry niches ripe for growth and consolidation. Then they work to develop an ‘angle’ or ‘edge’ to give them a competitive advantage. This includes years of strategic planning, along with conversations with company founders and management teams. When the seller does hire an advisory firm, the PE firm is already the favoured buyer.
What kind of businesses qualify for this type of investing? Unsurprisingly, they are often US-centric and service-oriented, with proven, stable growth through the past decade of multiple macroeconomic and market gyrations. Good examples showing up in our pipeline this year include accounting firms, insurance agencies, pest control and commercial landscaping.
In each case, small companies find themselves at a growing disadvantage relative to larger peers. Having an experienced PE partner provide capital for organic growth and add-on acquisitions, as well as advisory support, allows founders and management to succeed in an increasingly challenging world. This can result in a higher sales multiple when the sponsor eventually exits.
In our survey results, senior PE executives revealed new confidence in both their deal activity and returns. Along with expectations that M&A will see restoration over the next 12 months to normal levels, there is a prediction that exits from portfolio companies will resume.
Most GPs see two portfolio exits within the next year. Over 33% predict three exits or more.
Exits will rise later this year
2024 exit activity showed steady improvement quarter-by-quarter, but those numbers slowed in Q1 2025. The second quarter improved steadily after April’s Liberation Day. Be prepared for better volume in the second half of 2025.
That is how the PE flywheel works. As the Fed eases rates, financing conditions should improve. That strengthens the backdrop for buyouts, which leads to more realisations for LPs. Exits support GP fundraising, boosting deployment and providing LPs with yielding assets, and so on.
Helpfully for investors, 90% of PE executives expect 2025 base-case returns will match or exceed those from 2024.
