Remember when private equity felt unstoppable?
For years, cheap money poured in, deals flew left and right, and exits—whether IPOs or big strategic sales—happened almost on autopilot. Then 2022 arrived like a brick wall. Rates shot up, buyers vanished, and suddenly everyone was “staying private for longer.” Three years later, the industry is sitting on the largest pile of unrealized gains in history. Trillions of dollars, aging portfolios, and limited partners quietly tapping their watches.
But something feels different now.
Dealmakers I’ve spoken with lately aren’t just hopeful—they’re actually sound excited. And the catalyst everyone keeps pointing to? The Federal Reserve.
Why Lower Rates Are Rocket Fuel for Private Equity
Let’s be honest: high interest rates were the ultimate buzzkill for leveraged buyouts. When your cost of debt jumps from 2-3% to 7-8% practically overnight, the whole LBO math breaks. Suddenly you can’t pile on as much leverage, returns projections shrink, and buyers disappear.
A rate-cutting cycle flips that script completely.
Lower borrowing costs do four magical things at once:
- They make debt cheaper and more abundant
- They lift equity valuations across the board
- They bring strategic buyers and IPO investors back to the table
In plain English: the entire exit ecosystem wakes up.
The M&A Engine Is Already Warming Up
Global M&A volumes are already up close to 40% year-to-date. That’s not noise—that’s a trend. The second half of 2025 has seen a noticeable acceleration as volatility has calmed down and corporates have started shopping again.
What’s driving it? Large companies have spent the last two years cleaning house, hoarding cash, and sharpening their strategic focus. Now they’re ready to buy the assets they actually want—and shed the ones they don’t.
That creates a goldmine of carve-out opportunities for private equity. Think non-core divisions of Fortune 500 companies suddenly hitting the market with clean balance sheets and real growth runways. These are exactly the kinds of situations sponsors love.
“Corporates have become very deliberate. They know exactly what they want to own—and what they’re happy to let go.”
— Global co-head of private equity at a major investment bank
The IPO Window Is Cracking Open (Slowly)
Let’s not get carried away—nobody expects 2021-level madness. The public markets have permanently changed. Investors are pickier, governance standards are higher, and staying private really is easier than it used to be.
Having said that, the mood has shifted.
Companies with real scale, defensible market positions, and clear profitability paths are starting to attract real attention again. Lower rates reduce the discount rate applied to future cash flows, which mechanically boosts valuations. That matters a lot when you’re trying to price an IPO in a skeptical market.
In my view, 2026 could be the year we look back on and say, “That’s when the IPO market actually came back—not with a bang, but with a steady stream of high-quality deals.”
The Massive Backlog No One Wants to Talk About
Here’s the part that keeps GPs up at night: there are literally trillions in assets that have been held for six, seven, even ten years or more. In Europe alone, estimates put that figure north of $1 trillion.
Funds have finite lives. Limited partners have been patient—remarkably patient—but that patience isn’t infinite. Distributions have been anemic for several years now, and LPs are starting to ask tough questions.
Lower rates don’t just make new deals easier; they make it possible to finally harvest this mountain of mature assets. Every quarter-point cut is another nudge toward getting these companies sold—whether to a corporate, another sponsor in a secondary, or the public markets.
Sectors That Could Explode
Not everything moves at the same speed. Some pockets of the economy are already on fire, and private equity is piling in.
- Healthcare – aging populations, new therapies, consolidation galore
- Technology & Business Services – especially anything touching AI implementation
- Financial Services – fintech, payments, insurance tech still have huge runways
- Energy Transition & Infrastructure – data centers, renewables, grid upgrades
Interestingly, the AI theme goes way beyond the usual suspects. It’s not just the model builders cashing checks. The real money over the next five years might be in the companies that help everyone else actually use AI—consultancies, software integrators, data center operators, power producers. Those businesses tend to have exactly the kind of recurring revenue and reasonable multiples that private equity loves.
What Happens Next?
If the Fed delivers the expected cut this week—bringing the range to 3.5-3.75%—it won’t flip a switch overnight. But it will reinforce a trend that’s already in motion: falling financing costs, tighter spreads, rising confidence.
Add in the natural pressure from that giant backlog of aging assets, plus corporates in full spring-cleaning mode, and you have the ingredients for the busiest couple of years private equity has seen since the pandemic boom.
Perhaps the most interesting part? This recovery feels sustainable. It’s not built on zero rates and euphoria. It’s built on real economic necessity—companies need to deploy cash, sponsors need to return capital, and LPs need liquidity.
In other words, the tide is finally turning. And for once, private equity looks ready to ride it rather than fight it.
So if you’ve been waiting on the sidelines—whether you’re an investor, an advisor, or just someone who likes to watch big money move—now might be the time to start paying very close attention.
Because the great private equity logjam of 2022-2025? It’s starting to crack.
