Private Equity's Liquidity Crisis Fuels a New M&A Gold Rush

The private equity (PE) industry is at a crossroads. After three years of declining fundraising and a historic liquidity crunch, PE firms are under unprecedented pressure to return capital to investors. This structural shift has ignited a wave of M&A activity, creating opportunities in sectors ripe for consolidation or operational turnaround. The question isn't whether M&A will dominate the next decade—it's already here. Let's dissect why this trend is irreversible and where investors should place their bets.

The Structural Shift: Fundraising Declines and the Liquidity Squeeze

The numbers are stark. Global fundraising for traditional PE vehicles dropped 24% in 2024 compared to . Macroeconomic headwinds, including rising interest rates and geopolitical instability, have dampened investor appetite for new commitments. Meanwhile, limited partners (LPs) are demanding faster returns: distributions to paid-in capital (DPI) is now the “most critical” performance metric for 2.5 times as many investors as in 2021.

The result? A liquidity crunch. PE firms are sitting on $418 billion in dry powder—a 10% year-over-year decline—but face a record backlog of sponsor-owned companies awaiting exits. With LPs increasingly insisting on full, traditional exits (even at valuations below earlier marks), PE firms have no choice but to accelerate deals.

The Catalyst: Forced Exits Create M&A Goldmines

The urgency to return capital has turned M&A into a lifeline. PE-backed exits rebounded in 2024, with sponsor-to-sponsor transactions surging as buyers snap up distressed assets. This trend is self-reinforcing: as PE firms offload portfolio companies, strategic buyers and private investors scoop up undervalued assets, creating a cycle of liquidity generation.

Consider the case of 3G Capital's $9 billion acquisition of Skechers in early 2025. The deal, executed amid tariff-driven volatility, exemplifies how PE-backed companies are being targeted for operational turnaround. Skechers' stock rose 18% post-acquisition as 3G outlined plans to cut costs and boost margins—a playbook that's now table stakes for M&A in this environment.

Sectors to Watch: Where Consolidation Meets Turnaround Potential

The M&A boom isn't indiscriminate. Investors should focus on industries where structural tailwinds align with PE's liquidity pressure:

1. Technology: AI-driven operational improvements are unlocking value in software and data infrastructure. PE-backed firms like Snowflake and Palantir are prime targets for strategic buyers looking to integrate generative AI capabilities.

2. Healthcare: Regulatory shifts and aging populations are accelerating consolidation in pharmaceuticals and digital health. PE-backed players like Teladoc and One Medical are ripe for acquisition by insurers or tech giants seeking to expand care platforms.

3. Industrials: Geopolitical risks have exposed vulnerabilities in global supply chains. Sectors like logistics, manufacturing, and renewable energy are consolidating to build resilience. Expect more deals in firms with ESG credentials, as buyers prioritize sustainable operations.

Investment Implications: Playing the M&A Wave

The M&A boom isn't just a PE story—it's an equity market opportunity. Here's how to capitalize:

• Buy M&A Targets: Identify companies in high-conviction sectors with PE ownership and strong fundamentals but undervalued stock. These firms are likely to be acquisition targets, offering upside from valuation resets.
• Focus on Operational Turnarounds: Back companies with clear paths to margin expansion, such as legacy industrials undergoing digital transformation.
• Monitor Secondary Markets: As PE firms offload assets, secondary buyers (including retail investors) can access discounted stakes in high-potential companies.

The Bigger Picture: Why This Isn't a Flash in the Pan

The structural shifts fueling this M&A boom are durable. PE's reliance on traditional fundraising is waning, with evergreen funds and co-investments now driving capital deployment. Meanwhile, LPs' focus on liquidity isn't fading—they've permanently raised the bar for transparency and returns.

For investors, this is a high-conviction theme. The pressure on PE to execute exits isn't a temporary blip; it's a new reality. The sectors mentioned here—tech, healthcare, industrials—are where capital will flow, and where the next wave of value creation will begin.

In the end, the liquidity crunch isn't just reshaping private equity—it's rewriting the rules of the public markets. Those who bet on M&A-driven value creation today will be tomorrow's winners.

Andrew Ross Sorkin is a columnist for The New York Times and the author of "Too Big to Fail."