The Resurgence of Large Leveraged Buyouts: Private Equity and Sovereign Wealth Fund Strategies in a Low-Interest-Rate Era

In 2025, the private equity and sovereign wealth fund landscape has witnessed a dramatic resurgence in large leveraged buyouts (LBOs), fueled by historically low interest rates, abundant dry powder, and a strategic shift toward capital deployment. According to a Reuters report, private equity firms and sovereign wealth funds have orchestrated transactions totaling tens of billions of dollars, with the proposed $55 billion takeover of Electronic Arts by Silver Lake, Saudi Arabia's Public Investment Fund, and Affinity Partners serving as a prime example. This trend reflects a broader industry recalibration, as sponsors seek to capitalize on favorable financing conditions and the urgency to deploy capital amid prolonged holding periods, according to an S&P Global analysis.

The Drivers of LBO Resurgence

Low-interest-rate environments have fundamentally reshaped the risk-return calculus for private equity and sovereign wealth funds. Data from S&P Global indicates that the value of private equity LBOs in 2025 is on track to surpass 2024 levels, driven by a surge in megadeals exceeding $5 billion. The reduced cost of debt has enabled sponsors to secure financing at historically low spreads, with first-lien loan leverage hitting a record 4.9x in 2024. Additionally, the reentry of traditional banks into LBO lending has intensified competition, further compressing borrowing costs, as noted in a Harvard Corporate Governance analysis.

Sovereign wealth funds, in particular, have emerged as critical partners in these transactions. Their appetite for stable cash flows and long-term value creation aligns with the goals of private equity, creating a symbiotic relationship. For instance, the Saudi Public Investment Fund's involvement in the Electronic Arts deal underscores its strategy to diversify into high-growth technology sectors, as detailed in the Reuters report.

Strategic Financial Structuring and Risk Mitigation

The financial structuring of LBOs has evolved to balance risk and reward in a low-interest-rate environment. A McKinsey report highlights that sponsors are increasingly adopting multi-layered capital structures, combining senior debt, mezzanine financing, and equity to optimize returns. In the case of the $8.9 billion R1 RCM take-private by TowerBrook Capital Partners and Clayton Dubilier & Rice, consortium deals have become the norm, allowing for shared risk and resource allocation, as discussed in the Harvard Corporate Governance analysis.

However, the industry is also adapting to the realities of higher interest rates. As noted in an Advisor Perspectives piece, recent transactions have seen a shift toward equity-heavy financing, with debt comprising as little as 20% of the capital structure in deals like Biotage's acquisition. This approach mitigates exposure to rate volatility while preserving operational flexibility. Interest rate swaps and hedging strategies are also being deployed to insulate returns from potential rate hikes, per the McKinsey report.

Case Studies and Market Dynamics

The Smartsheet acquisition by Blackstone and Vista Equity Partners in Q3 2024 exemplifies the strategic use of established private equity partnerships to execute large-scale transactions, as outlined in the Harvard Corporate Governance analysis. By leveraging their combined expertise and capital pools, sponsors can navigate complex regulatory and operational challenges. Similarly, the focus on technology, media, and consumer sectors reflects a broader trend toward industries with predictable cash flows and high growth potential, a trend highlighted in the Reuters report.

Emerging markets have also become a focal point for LBO activity. Sovereign wealth funds and private equity firms are increasingly targeting infrastructure and real estate projects in regions like Southeast Asia and Latin America, where low interest rates facilitate refinancing and long-term value appreciation, according to the Reuters report. Currency hedging strategies are critical in these deals to mitigate exchange rate risks, a point the Reuters coverage also emphasizes.

Future Outlook and Challenges

While the current environment favors LBOs, sponsors must remain vigilant about macroeconomic headwinds. A Harvard Corporate Governance analysis notes that geopolitical uncertainties and potential rate normalization could test the resilience of highly leveraged portfolios. Nevertheless, the industry's emphasis on operational improvements, liquidity solutions, and diversified asset classes positions it to navigate these challenges, as the Harvard analysis further explains.

In conclusion, the resurgence of large LBOs in 2025 underscores the adaptability of private equity and sovereign wealth funds in leveraging low-interest-rate environments. By combining innovative financial structuring, strategic partnerships, and risk management frameworks, these players are redefining the contours of value creation in a dynamic market.