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High interest rates, tariffs, and geopolitical issues slow

M&A

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Capital tie-up creates tug of war between PE and LPs for

profit

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IPO market revives with 31 IPOs raising $11 billion by May

2025

By Sabrina Valle

NEW YORK, June 18 (Reuters) - Private equity firms are

holding about $1 trillion in unsold assets,

PricewaterhouseCoopers (PwC) said on Wednesday - capital that,

in a typical market environment, would have been returned to

investors.

High interest rates in the United States, President Donald

Trump's on-again, off-again approach to tariff policy, and

geopolitical uncertainties have eroded company valuations and

contributed to firms holding onto portfolio firms far longer

than expected.

The capital tie-up is playing a role in the slowdown in

dealmaking. Mergers and acquisitions, a key barometer of global

economic health, have stalled this year.

"Patience is wearing a little bit thin" among limited

partners (LP), said Kevin Desai, PwC U.S. deal platform leader.

LP firms combine some of the largest and most influential

investors in the world and invest trillions of dollars in PE

firms in expectation of regular returns.

Despite entering 2025 with high hopes for an M&A rally under

Trump, deal volume and value have remained largely flat

year-over-year, with 4,535 deals totaling $567 billion through

May, PwC said.

PwC's May 2025 Pulse Survey found that 30% of respondents

have paused or are revisiting deals due to tariff issues,

fueling investor frustration over delayed returns.

"In a typical M&A cycle, $1 trillion would have already been

put back into the market," Josh Smigel, PwC's U.S. private

equity leader, told reporters while disclosing the firm's 2025

midyear outlook on deal activity.

Private equity firms, which deploy LP capital into

businesses across industries, currently have $3 trillion

invested in 30,000 companies, according to PwC, with 30% held

for longer than five years.

That is above the traditional timeline by which funds expect

to have a profit on their investments.

Earlier, these firms could easily hit their rate of return

targets by using cheap debt and favorable market conditions.

A separate PwC study found 57% of executives, who poured

capital into businesses that needed to be fixed, saw the

investments shrink or stay the same.

So, now, PE firms need to be creative to squeeze profit from

assets - often bought at peak prices, said Liz Crego, PwC's

industry markets leader. That includes selling a small portion

of a business that can be more valuable as a separate entity,

she said.

A more uncertain market has also led to a decline in

cross-border deals to 16.9% of total activity, down from 18.7%

in 2021. China-related deals, in particular, face heightened

scrutiny and strategic reevaluation, PwC said.

CAUTIOUSLY OPTIMISTIC

The initial public offering (IPO) market has shown signs of

life, with 31 traditional IPOs raising $11 billion through May.

While April saw a pause due to tariff shocks, activity resumed

in May and June, with fintechs like Chime, valued at $18.4

billion at its Nasdaq debut, leading the charge.

Special purpose acquisition companies (SPACs) are also

making a modest comeback, with over 50 of those publicly traded

shell companies created to raise capital through IPOs.

To unlock the $1 trillion held by PEs, the recession cloud

over the U.S. would have to recede, Washington would need to

provide clarity over tariffs and interest rates must decline,

Smigel said.

Nevertheless, PwC expects M&A activity to improve in the

coming quarters, with pressure from the LP funds looking for

returns and as assets are repriced.

"Whether that is the back half of 2025 and into 2026, there

are reasons to be optimistic," Smigel said.

(Reporting by Sabrina Valle; Editing by Mrigank Dhaniwala)