Abbott Year End 2024 Private Equity Market Overview

OVERVIEW

The U.S. financial markets performed strongly in 2024, with the S&P 500 and NASDAQ surging over 20% for the year.  The 10-year treasury yield ended the year 60 basis points higher than January, as the Federal Reserve cut rates in December while signaling a slower pace of cuts in 2025.  While the annual rate of GDP growth declined slightly in Q4 2024, growth for the full year was a robust 2.8%, down slightly from 2.9% in 2023.  Inflation ticked up slightly in the fourth quarter but appeared to gain further momentum early in 2025.  In January 2025, both headline CPI and Core CPI (excluding food and energy) rose to 3% or higher, further moderating expectations of aggressive Federal Reserve rate cutting in 2025.

While we do seem to have achieved the soft landing that prior quarterly letters had observed, we appear to be embarking on a new journey.  The new U.S. administration’s approach to everything from foreign policy and trade to domestic spending priorities has clouded the forecast.  Irrespective of one’s political sympathies, the potential impacts, both positive and negative, on the financial markets, labor markets, the U.S. economy, or the global economy are difficult to predict in the short term. 

Meanwhile, we know that for 2024, U.S. fundraising for buyouts and venture capital were down from prior years, while Europe saw a rebound.  Both new deal and exit activity in U.S. private equity rose.  Venture deal activity saw a remarkable concentration with 26% of investment dollars focused on just 15 companies.  An inverse situation surfaced in European private equity exits, where the total number was up 19%, but the volume was up only a modest amount.  As always, it appears, secondary activity remains strong.  Are investors looking for liquidity that their managers have struggled to deliver in the recent past, or is this just a reflection of continued growth and adoption of this still somewhat newer facet of private equity?  Whether it is the former or the latter, it is one trend that is likely to persist. 

VENTURE CAPITAL

Fewer U.S. venture capital funds were raised in 2024 than in any year since 2014, according to NVCA’s preliminary estimates.  Just 508 funds raised capital in 2024 versus over 900 in 2023, and more than 1,600 in each of the prior two years.  Funds raised just $76 billion, which is in line with the 10-year median, but well below the 10-year average of $92 billion.  Large scale funds ($1 billion or more) were the only segment that exceeded 2023 fundraising.  The average fundraising period extended to 16 months in 2024, the longest in over a decade.  Of the 508 funds raised, only 30 closed on over $500 million, 26 of which were established managers with at least three prior funds.  Similarly, emerging managers (less than four funds) raised only $15 billion, approximately half of last year’s level, which was the lowest total since 2015. Similar to trends in European private equity, LPs appear to be concentrating their attention and commitments into larger, more established groups.

Deal counts for 2024 (including 1,484 estimated deals) exceeded 2023’s by 4%, while total deal value increased by 29%.  Both figures are still below the 2021 and 2022 highs but are above every other year in the past decade.  Both increases for the year were driven by deals over $50 million, which were up 23% year-over-year in number and 52% in value.  The total value increase was driven by 15 deals that were valued over $1 billion.  In total these deals accounted for over 26%, or $50 billion, of the U.S. venture capital market.  Across all stages, median pre-money valuations increased in 2024, and in some cases dramatically so: venture growth median pre-money valuations were 100% higher in 2024 than in 2023.  In 2024, pre-money valuations for all stages were 68% to 100% higher than their 10-year medians.

In terms of deal count by company fundraising round (including estimated deals), pre-seed/seed were up 14%, early stage were up 16%, late stage were up 5%, and venture growth were up 1% respectively.  From a sector perspective, software accounted for roughly 40% of total deals and deal value in 2024.  From a valuation perspective, the median pre-money valuation in 2024 for deals at all stages rose, with venture growth valuations doubling from an abnormally low 2023.

Total disclosed exit value in 2024 rose 24% from 2023, while the total estimated exit count increased by 10%.  Exit counts at all sizes are down over 70% from their peak in 2021.  The largest exits, those over $500 million, have declined the most from the peak, but are close to the 10-year median.  Exit counts in all other size ranges are well below their longer-term medians.  The public markets also continue to be a challenged exit alternative.  There were fewer public exits for U.S. venture-backed companies in 2024 than in any year since 2016.  

Venture fundraising continued to languish.  The rise in pre-money valuations across all stages and the lack of funding of emerging managers may highlight an ongoing flight to perceived quality across the market.  However, signs of recovery are emerging, beginning with deal and exit activity.  Policy dynamics, strong equity markets, and continued economic growth in the U.S. may lead to increased acquisition activity.  Overall, 2025 may provide a more constructive environment for venture capital.

U.S. PRIVATE EQUITY

U.S. private equity fundraising seemingly stalled in the fourth quarter of 2024.  While year-to-date volumes through the third quarter were consistent with 2023, 2024’s total volume fell to $285 billion from the $395 billion raised during the prior year.  At the same time, average fundraising timelines have stretched to 16 months, up from 14 and 11 months in 2023 and 2022, respectively.  Perhaps counterintuitively, this extended fundraising cycle came at a time when LPs had fewer funds from which to choose: only 311 funds raised during 2024, versus 686 and 1,000 in 2023 and 2022, respectively.

In contrast with the prior two years, which saw a robust fundraising environment and muted deal activity contribute to dry powder growth past the $1 trillion mark, dry powder decreased by a modest $17 billion during 2024, marking the first annual decline since 2010.  In contrast to weaker fundraising, 2024 saw a resurgence in deal activity.  During 2024, $839 billion in deal value was recorded over 8,473 transactions (includes an estimated value of $80 billion across 1,299 transactions), an increase from $703 billion over 7,515 transactions during 2023.  The IT sector emerged as a strong catalyst of this increase, with software deal value in 2024 surging by 32% and volume increasing by 28%.  Factors contributing to this pick up may include moderating inflation, improved credit availability from banks and private lenders, and a favorable inflection in interest rates, altogether creating a more conducive environment for dealmaking.

These developments carried through to exits as well, which ended their two-year run of declines.  During 2024, $413 billion in exit value was recorded across 1,501 transactions (includes an estimated value of $48 billion across 431 transactions), a $136 billion increase from 2023 and surpassing the pre-pandemic 2017 – 2019 average of $350 billion.  Exits via IPO notably improved, with $40 billion of value generated from 16 IPOs, an increase from the $8 billion of value across 14 IPOs during the prior year.  For the year, median EV / EBITDA multiples climbed to 12.7x compared to 11.9x during 2023.  Despite these positive signs, 2024’s “exit-to-investment” ratio ended at 0.36x, an historically low mark since the Global Financial Crisis, signifying that exits have yet to catch up with new dealmaking.  While GPs have increasingly turned towards continuation vehicles and GP-led secondaries processes to solve for liquidity, it appears that the reemergence of traditional exit paths should be a positive development over 2025.

EUROPEAN PRIVATE EQUITY

European private equity fundraising in 2024 was strong.  Over the last decade only 2021 and 2023 marginally surpassed the €122 billion raised in 2024.  However, the number of funds raised continued to decline, with only 127 funds closing in 2024, compared to 179 in 2023 and 261 in 2022.  Unsurprisingly, large cap funds, with sizes more than €5 billion were most successful in raising capital in 2024, with €68 billion raised across five funds, representing 55% of overall funds raised by volume.  This development is in line with long-term trends of LPs making fewer, but potentially larger commitments to GPs.  Apart from large cap funds, the other size category of funds that have seen a significant increase in volume of capital raised compared to the prior year are funds €100 million to €500 million (up 29% year-over-year).      

Deal activity in 2024 saw a significant recovery compared to 2023, with 8,264 deals worth €595 billion at closing (includes an estimated 1,394 deals with an estimated deal value of €65).  This marked a year-over-year deal count increase of 18% and deal value of 35%, respectively.  Monetary easing has gained momentum in Europe, which may have contributed to the increase in deal activity.  The European Central Bank cut rates four times in 2024, decreasing interest rates by 135 basis points to 3.15% at the end of 2024 with further rate cuts expected in 2025.

With respect to realizations, activity continued its upward trend in 2024 compared to the prior two years.  In 2024, 1,702 PE-backed companies exited (includes an estimated 426 companies), a 19% increase year-over-year.  Exit volume also continued its positive momentum with a cumulative value of €288 billion exiting (includes an estimated €39 billion), representing a year-over-year increase of 5% in exit value.  GPs have noted that high-quality businesses with good organic growth, high margins and good cash flow generation have traded particularly well and often at strong EV/EBITDA multiples.  In line with this observation, the median EV/EBITDA multiple in Europe stood at 12.2x for the TTM, marking a noticeable increase from 10.4x in 2023.

SECONDARIES

The global secondary markets set new records in 2024, with volumes increasing by 45% year-over-year to $162 billion (as per intermediary Jefferies).  This was driven by strong increases in both GP- and LP-led transactions, with a slight majority of all transactions being LP-led (54% of total volume).  On the LP side, Jefferies noted that most sellers cited a desire to generate liquidity and rebalance their portfolios as their primary reason for selling, with 40% of sellers transacting for the first time.  As in years past, the number of large LP sales (those exceeding $1 billion dollars) continued to increase, with 27 such transactions, compared to 19 in 2023.  Pension funds accounted for the largest amount of selling, at 54% of LP transaction volume, though funds-of-funds were also notably active during the year.

GP-led deals also had a banner year in 2024, increasing by 44% year-over-year to $75 billion.  There was a notable uptick in deal activity in the second half of the year, with H2 volume of $47 billion significantly more than the $28 billion from H1.  The vast majority of GP-led transactions for the year were continuation vehicles (CVs), with the remaining minority of deals coming from tender offers, structured equity, and fund finance transactions.  Sponsors have increasingly come to view continuation vehicles as legitimate exit options, with CVs now representing approximately 12-13% of all sponsor exit volume for each of the last two years.  Single asset CVs represented the largest percentage of GP-led deals in 2024 (approximately 54%) and on average acquired companies with a vintage year of 2018.  As in the prior year, approximately 75% of all GP-led deals were in buyout strategies.

Blended secondary pricing for LP portfolios increased substantially in 2024.  On the buyout side, pricing reached 94% of NAV, representing a 300-basis point increase over 2023.  This increase in pricing may have been driven in part by broader performance in the public markets (which rose to an all-time high in 2024) and an overall reduction in interest rates, as some secondary buyers lever their purchases.  Buyout portfolios represented 70% of all selling volume.  On the venture side, pricing increased even more materially to 75% of NAV, up 700 basis points from 2023. Venture fund sales as a percentage of the broader market remained relatively unchanged year-over-year at 11% of total volume.

In general, buyers demonstrated a marked interest in acquiring younger funds, with 63% of total LP selling volume concentrated in funds from 2018 or younger, versus only 24% of LP volume in funds from 2015 or older.  The average age of a fund sold in 2024 hit a record low of 6.6 years, significantly below the ten-year average of 8.3 years.  Buyers’ interest in younger funds was also reflected in pricing during 2024.  For funds less than three years old, average buyout pricing was 99% of NAV, while for funds between four and six years old, average buyout pricing was 96% of NAV.

OUTLOOK

A year ago, we expected a slower fundraising year for 2024, and, generally, that came to pass.  We also thought that market conditions were in place to support a better exit environment than in prior years.  While the conditions we cited (strong equities markets, advancing GDP, moderating inflation and a more accommodative rate environment) remained largely in place through the year, exit activity did not rebound dramatically across the private markets.  As of mid-February 2025, U.S. equity markets were up modestly for the year (as were European markets), but rates are likely to remain stable amid higher-than-expected inflation figures.  Until there is more clarity around which, when, and how Trump Administration policy objectives are implemented, we agree with Niels Bohr: “Prediction is very difficult, especially about the future.”