Deal value has returned, exits are flowing again, and the industry’s confidence is being rebuilt on firmer ground. New analysis from McKinsey & Company, authored by senior partners Alexander Edlich, Chris Llewellyn and Warren Teichner alongside partners Christopher Croke and Rahel Schneider, shows that 2025 marked the strongest year for large-scale private equity dealmaking on record. Buyout and growth deals larger than $500 million rose 44% to exceed $1 trillion, surpassing the previous 2021 peak.

Operational value creation, artificial intelligence, specialisation and alternative fund structures are becoming the primary levers of return. 70% of the 300 global LPs surveyed by McKinsey in January 2026 said they plan to maintain or increase their private equity allocations this year.

Over the past decade, top-quartile buyout funds have generated a 24% internal rate of return (IRR), comfortably ahead of the S&P 500’s 15% and the MSCI World’s 13% total shareholder returns over the same period. The task now is understanding how to position for that top quartile, however there are numerous opportunities for dealmakers, operators, fundraisers and limited partners (LPs) who are prepared to adapt their approach.

Dealmaking momentum

Global private equity deal value rose 19% in 2025 to $2.6 trillion, with buyout dealmaking reaching its second-highest year on record at nearly $1.8 trillion. Exit value climbed even further, up 41% to $1.3 trillion, aided by a near-doubling of IPO exit value to over $320 billion. Deals above $500 million rose by 44% to top $1 trillion, beating the previous high set in 2021. The biggest deals of all, those above $2.5 billion, jumped 72% in value. This was the year the largest private equity deal in history was announced, a $55 billion take private of Electronic Arts by a group of firms, and one of the busiest years on record for taking public companies private.

Although it was the second highest total ever recorded, the number of deals actually fell by 5%, which shows the growth came from fewer, larger transactions rather than more activity overall. This move towards fewer, bigger deals means firms need to be more selective about where they spend their time. Take private deals, where a public company is bought and delisted, rose 43% globally and 72% in North America alone. These deals are often more complicated, but that is where the value lies. Public markets can price companies below what they are really worth.

Paying a premium for quality

Buyout prices reached a record high in 2025. The typical price paid, measured against a company’s earnings, rose to 11.8x, just above the previous record set in 2022. Firms are increasingly paying more for the businesses they see as higher quality and safer bets in an uncertain economy.

Part of the reason is that a large amount of money raised by firms in past years still sits unused. Around 40% of this money, known as dry powder, has now been available for more than two years, the highest level on record. With that pressure to invest, and fewer good assets to choose from, prices for the best businesses have been pushed up.

This means the businesses bought today need to work harder to justify their price. Since firms are contributing more of their own money and borrowing less than before, they can no longer rely on debt to boost their returns as much as they once did, instead, they focused on getting more from the business itself, through better performance rather than financial engineering.

Locating Real Returns

For years, private equity returns were driven mostly by paying low prices, selling for more later, and borrowing cheaply. Analysis from StepStone Group shows that between 2010 and 2022, borrowing and rising prices accounted for 59% of returns. The remaining 41% came from actually improving how the business performed, through more sales and better profit margins.

Debt now makes up 37% of the price paid for a typical deal, down from 44% in 2016. With less room to rely on borrowed money, firms are being pushed to focus more on the operational side of the businesses they own. Much of the improvement in profit margins tends to happen in the final year before a company is sold, almost like work being rushed before a deadline.

A better approach is to plan improvements from the very start of ownership and check progress at the halfway point, rather than leaving everything until just before sale. Firms that specialise in a single sector already show the benefit of this, generating average returns of 17% compared with 13% for firms that invest across many industries, largely because their deeper knowledge lets them start improvements sooner.

Leadership also plays a bigger part than many firms admit. Between 60% and 70% of the businesses owned by private equity firms change their chief executive at some point during ownership. Getting that appointment right, and then properly supporting the person afterwards, has a direct effect on how well the business performs, and is one of the clearest ways firms can add value early rather than waiting for problems to appear.

Powering better outcomes

Getting the right person in charge of a business makes a genuine difference to how it performs. Between 60% and 70% of businesses owned by private equity firms change chief executive at some stage during ownership, and firms that manage this transition well are setting their businesses up for stronger, more sustained growth. Rather than waiting until performance dips to make a change, the most effective firms are proactive about building strong leadership from the very start.

Technology is opening up a similarly exciting set of possibilities. Only 6% of firms currently see artificial intelligence delivering a significant impact on their own operations, however 70% expect this to change within three to five years. Firms already putting the technology to work in areas like pricing, sales and back office functions are reporting productivity gains of between 30% and 40%, with healthcare, technology and energy leading the way as the sectors where this impact is expected to be felt most.

Capital finds new routes to market

Headline figures for fundraising in 2025 look weak at first glance, down 17% globally, however, fundraising in North America actually rose by 8%, and money raised through newer types of funds, including those aimed at wealthy individual investors rather than large institutions, grew fast. In the United States, this kind of investment more than doubled since 2023, reaching $204 billion in 2025.

This highlights an opportunity for firms willing to build the systems needed to offer these newer types of funds. More than 1,300 financial advisers surveyed in the United States expect their clients to put more money into private markets in the years ahead, with 42% expecting over a quarter of client money to be invested this way by 2030.

Firms that build the right systems and processes for these funds now, rather than waiting until demand becomes unavoidable, will be better placed to take advantage of this shift. Rule changes in both the United States and the United Kingdom are also making it easier for everyday investors and pension funds to put money into private markets, adding further support to this growing channel.

Cash returns take priority

Investors in private equity funds have made their priorities clear. How much actual cash a fund returns, rather than just its value on paper, now sits alongside overall growth as one of the two most important measures they use when deciding where to invest. In 2025 the money returned by buyout funds exceeded the money being called in from investors for the second year running.

Trading of existing fund stakes between investors, known as the secondaries market, grew 48% during 2025, reaching new highs and giving investors a useful way to access cash even when a traditional sale takes longer than expected. Continuation vehicles, which allow a business to remain under the same ownership for longer under revised terms, have also performed strongly, with the best examples outpacing traditional buyout funds. Taken together, these developments point to an industry that is not just recovering, but genuinely maturing into a stronger, more resilient version of itself.