June 20, 2025 - In today’s tumultuous market, investors continue to hold out for quality deals. Meanwhile, we expect deal cycles to lengthen and regulatory scrutiny to tighten further, which means that discipline is critical to success.

This is a reason for leaders to act more decisively, not less. It is more important than ever to build a stronger back-office finance and accounting function that can provide an extra margin of insight. Every edge can help investors find their place in this ecosystem. Whereas fund managers without clear, actionable finance and accounting insight will be less able to navigate this volatile market.

This article explores the current state of the market and offers ideas for remaining agile.

Market Outlook: Continued Restriction

This market will remain selective. While capital is available, funds are slower to deploy and more focused than before on high-performing, well-structured opportunities. This is clear in the fact the market pulled out of a two-year slide last year, and the fact that multiples remained at a record 11.9X. Buyers are doing their diligence and giving more attention to fewer deals.

This past year, deal volume and value increased for most transaction sizes, but especially those between $2.5 billion and $10 billion, reports Bain & Company. Direct lending continued to grow at a disproportional rate and niche sectors displayed durable growth. For example, technology, media and entertainment, and real estate all attracted attention. Technology in particular continued to represent a great deal of private equity transactions — 33% by deal volume and 26% by deal value according to Bain & Company data.

That said, the aforementioned sectors also require precise diligence and structuring, especially given the rate at which AI is tearing through those industries. Roles at those types of companies rank high on lists of jobs at risk of automation, and this creates both challenges and opportunities:

• Technology companies may face a codeless, interface-less future where their moats are more difficult to defend.
• Media and entertainment production costs may plummet, demolishing barriers to entry and threatening IP.
• New AI infrastructure, data center, and power projects may reshape towns and companies across the U.S.

Even the most rigorous attempts to forecast the near future of AI fall short. The so-called cone of future possibilities remains too wide to plan more than a few years in advance. As such, every firm should involve finance specialists with a wide range of skills to evaluate matters of international treaties and trade to state and local tax to produce scenario plans on demand.

Meanwhile, recent regulatory changes will continue to ramp up pressure on private equity and venture capital firms to report on their own performance as well as that of their portfolio companies. In just the past few years there have been laws in the EU as well as in the U.S., including the green claims directive, the AI directive, and more. Investment advisors must now more closely consider their location of “permanent establishment” and funds must be more cautious helping portfolio companies remain compliant.

Portfolio companies tend to have worse cybersecurity safeguards and compliance than most companies, which adds to the challenge. And as we have previously written, many firms that own financial back-office systems are less advanced than their investing acumen would suggest.

Our analysis is straightforward: Those with clarity on their financial situation, as well as the valuations, tax impacts, and risk exposures of their portfolio companies will reap the rewards coming out of this period.

To Compete, Expand Your Finance Function

As market conditions persist, strong back-office fund operations will only grow more valuable. You are sure to want specialists who can help you think through fund-related issues such as valuation and tax structuring, which may shine a light on potential deals and other opportunities.

For example, portfolio companies in the manufacturing and distribution space affected by tariffs may fall victim to these policies, but they might also find hidden competitive advantages if they know more about reclassifying goods under the harmonized tariff codes.

Similarly, a specialist that can help with transaction advisory in both buy-side and sell-side support can perform more thorough quality of earnings (QofE) analyses. They can value companies in more creative and beneficial ways and can explore new structures for both the fund and portfolio companies, which may significantly alter the fund’s performance.

An expanded finance function allows leaders to see and move faster. As other general partners and sponsors struggle to make sense of the market and the data, specialists can arm you with insights that allow you to make more confident decisions across the investment lifecycle.

To learn more about our deal structuring services, buy-side and sell-side support, QoE studies, and valuation advisory services, reach out to Alexander Reyes or Christopher Brown.