Fewer Deals, More Pressure: How Private Equity is Raising the Bar on Diligence
The state of M&A in 2025 can be summed up in four words: fewer deals, more pressure.
With interest rates still elevated and valuations slower to adjust, private equity firms are approaching acquisitions with heightened scrutiny. Portfolio companies are under pressure to deliver performance, while every potential transaction is subject to deeper questioning. In this environment, diligence isn’t just a box to check. It’s a competitive advantage.
Why the Pressure Is Rising
Several forces are reshaping the private equity landscape:
Fewer deals. Overall deal flow has slowed compared to previous years, making every opportunity more critical.
Valuations remain high. Even with market volatility, multiples haven’t dropped far enough to offset the higher cost of capital.
Portco performance pressure. Operating partners are pushing management teams harder on efficiency, growth, and margin expansion.
Rising diligence expectations. When mistakes are more expensive, investors are digging deeper into risk areas like software development, cloud infrastructure, and engineering practices.
What Disciplined Investors Are Doing
Slower cycles don’t mean firms are standing still. The most disciplined investors are using this time to sharpen their edge:
Revisiting investment theses. Firms are reassessing assumptions about growth, operations, and technology, ensuring strategies remain sound in the current market.
Upgrading portfolio company capabilities. From modernizing engineering teams to optimizing cloud costs, PE firms are leaning into operational improvements that protect and expand enterprise value.
Running faster, tighter diligence. When deals do appear, firms are prepared to move decisively, but only with confidence that risks and opportunities are fully understood.
The Shift to Earlier Value Creation Planning
One of the most significant trends we’re seeing is value creation planning before the term sheet. Investors know that conviction comes from going deeper, earlier. That means bringing in technical diligence upfront, not just to uncover risk but to also map out how engineering, cloud infrastructure, and software outsourcing can accelerate post-close performance.
The Bottom Line
In today’s environment of fewer deals and more pressure, private equity firms can’t afford surface-level diligence. By going deeper into technology, engineering, and operations earlier in the deal cycle, investors position themselves to move decisively when opportunities arise.
Conviction in this market doesn’t come from speed alone. It comes from clarity, and clarity comes from a deeper understanding of the technical foundations that drive portfolio performance.
