Mergers and acquisitions (M&A) and private equity (PE) have always been interconnected, but the dynamics of dealmaking are shifting faster than ever. Rising interest rates, tightening credit markets, and increased regulatory scrutiny have reshaped the way deals are structured, financed, and executed. For private equity firms, the days of cheap leverage and easy exits are over—but that doesn’t mean opportunities have dried up. If anything, the current climate favors investors who can think beyond financial engineering and drive real operational value.

But what’s really driving M&A trends in private equity? Are PE firms outbidding corporate acquirers, or is strategic capital gaining the upper hand? And how are deal structures evolving to mitigate valuation risks and financing challenges? Understanding these shifts is not just about staying informed—it’s about securing better deals and maximizing returns.

Let’s take a closer look at the key trends shaping the intersection of M&A and private equity, from competitive deal dynamics to evolving transaction structures and regulatory challenges.

Private Equity’s Influence on M&A: How Investment Strategies Are Reshaping Deals

Private equity firms have long been dominant players in M&A, but their approach to dealmaking is fundamentally evolving. Unlike corporate acquirers, PE firms don’t just look for synergies—they look for ways to maximize returns through financial structuring, operational overhauls, and strategic exits. But in today’s market, simply buying low and selling high is no longer enough. With higher borrowing costs and valuation resets, PE firms must rethink how they deploy capital and extract value.

1. The Shift from Multiple Expansion to Operational Value Creation

Over the past decade, private equity firms have relied heavily on multiple expansion—buying companies at low valuations and selling them at a higher multiple. But with interest rates climbing and public market valuations compressing, this strategy has lost steam.

Now, the focus has shifted toward operational value creation, meaning PE firms must actively drive growth rather than relying on market forces to boost valuations. This includes:

• Tech enablement and automation to enhance margins
• Strategic bolt-on acquisitions to consolidate market share
• Aggressive cost-cutting to improve EBITDA in a high-inflation environment

Firms that fail to develop real operational expertise will struggle to deliver competitive returns in the coming years.

2. The Rise of Private Credit in M&A Financing

With traditional banks pulling back on leveraged loans, private equity firms have turned to private credit markets to finance deals. Private lenders, such as Apollo, Ares, and Blackstone Credit, are now stepping in to fill the gap, offering bespoke financing solutions with greater flexibility than traditional bank loans.

This shift has major implications for M&A:

• More creative capital structures, including unitranche financing and PIK (payment-in-kind) loans
• Higher borrowing costs, forcing firms to be more selective about acquisitions
• Greater emphasis on EBITDA optimization, as interest expenses eat into returns

In short, PE firms that can structure deals with innovative financing solutions will have a clear advantage over those relying on conventional lending models.

3. Mid-Market PE Firms Are Winning More Deals

While mega-funds continue chasing large-cap deals, mid-market PE firms have gained an edge amid shifting deal dynamics. Why? Because mid-sized companies tend to be less dependent on public market conditions, and their valuations are more stable in turbulent times.

Firms like Thoma Bravo, Francisco Partners, and Vista Equity have aggressively targeted smaller tech acquisitions, avoiding overinflated valuations while still capturing high-growth opportunities. This trend suggests that the real winners in today’s market aren’t necessarily the biggest players, but the firms that can adapt their investment thesis to a shifting macroeconomic landscape.

Strategic vs. Financial Buyers: The Competitive Landscape in M&A Transactions

Private equity firms and corporate acquirers have always competed for deals, but the balance of power has shifted in recent years. Rising financing costs have eroded PE’s traditional advantages, while strategic buyers—companies looking for long-term synergies—are now leveraging strong balance sheets to outbid PE firms in competitive processes.

1. Strategic Buyers Have the Upper Hand in Cash Deals

With interest rates higher than they’ve been in over a decade, corporate acquirers—who don’t rely on leverage as heavily as PE firms—are winning more auctions by offering all-cash deals. Unlike PE firms, which often finance transactions with significant debt, corporate acquirers can:

• Leverage synergies to justify higher bids
• Deploy excess cash reserves rather than relying on external lenders
• Invest with a longer-term outlook rather than focusing on a fixed exit horizon

For private equity, this means more selective deal sourcing and a heavier focus on under-the-radar opportunities where competition from strategic buyers is lower.

2. Why Some Sellers Still Prefer Private Equity

Despite the competitive disadvantage in bidding wars, private equity firms still have one major selling point: they offer sellers more flexibility in structuring deals. Many founders and business owners prefer selling to PE firms because:

• They can retain a minority stake and benefit from a second exit.
• PE firms often offer growth acceleration strategies that corporate buyers can’t match.
• Some founders prefer PE’s non-disruptive approach, allowing them to gradually step away rather than undergoing a full integration into a corporate entity.

The takeaway? PE firms may not always win on price, but they can differentiate themselves through structuring advantages and long-term value creation strategies.

3. Secondary Buyouts Are on the Rise

One clear trend in today’s M&A environment is the rise of secondary buyouts (SBOs)—where one private equity firm sells a company to another PE firm rather than exiting via IPO or a strategic sale. In 2023, secondary buyouts accounted for nearly 40% of PE exits, according to PitchBook.

Why? Because IPOs remain volatile, and corporate buyers are more cautious with acquisitions in uncertain economic conditions. SBOs allow PE firms to:

• Extend holding periods without being forced into unfavorable public market exits.
• Find new operational playbooks, as different PE firms have different specializations.
• Refinance at better terms, especially as debt markets adjust.

For investors, this trend reinforces the importance of long-term flexibility—the ability to adapt exit strategies to market conditions rather than sticking to rigid timelines.

Trends in Deal Structuring: Earnouts, Rollovers, and Alternative Financing Models

Private equity deal structuring has become more sophisticated out of necessity. The combination of rising interest rates, valuation gaps, and uncertain economic conditions has made traditional leveraged buyouts less viable, forcing firms to get creative. Earnouts, seller financing, and minority rollovers are no longer just niche strategies—they are now mainstream tools to close deals without overextending capital.

Earnouts: Managing Valuation Gaps with Performance-Based Payouts

One of the biggest roadblocks in today’s M&A market is valuation misalignment. Sellers still want pre-2022 multiples, but buyers—especially private equity firms—are unwilling to overpay in a higher-rate environment. Earnouts offer a middle ground, allowing sellers to receive additional payouts only if the company meets specific financial or operational targets.

However, earnouts also introduce post-closing risks—if buyers and sellers don’t fully agree on financial targets or accounting methods, disputes can arise.

Minority Rollovers: Keeping Sellers Invested Post-Acquisition

For PE firms, buying a company without completely cashing out the existing owners has significant advantages. Structuring deals so that founders retain a minority stake aligns incentives, ensuring they remain committed to long-term growth rather than exiting at the first opportunity.

However, rollovers only work if PE firms and founders agree on strategic direction—otherwise, conflicting priorities can create friction.

Regulatory and Market Forces Shaping M&A and Private Equity Transactions

M&A and private equity are facing intensified regulatory scrutiny, particularly in healthcare, infrastructure, and technology. Governments worldwide are re-examining the impact of private equity ownership on industries affecting consumers and national security, and the consequences are already reshaping deal strategies.

The Impact of Rising Interest Rates on Private Equity Financing

The era of cheap leverage is over, and private equity firms are feeling the squeeze. With the Fed maintaining higher-for-longer interest rates, the cost of capital has increased sharply, forcing firms to rethink how they finance deals.

A 2023 Bain & Company report found that private equity deal volume dropped by 20% year-over-year, reflecting the challenges of securing affordable financing. As a result, firms have:

• Shifted toward private credit lenders like Apollo and Ares instead of relying on traditional syndicated loans.
• Focused more on operational improvements to drive returns rather than relying on multiple expansion.

Higher borrowing costs aren’t just affecting deal volume—they’re also changing how firms structure exits. With IPO markets still volatile, many firms are opting for secondary buyouts or delaying exits entirely rather than selling into a weak market.

Regulatory Scrutiny: How the FTC and SEC Are Targeting PE Transactions

Regulators are zeroing in on private equity’s consolidation strategies, particularly in sectors where serial acquisitions could reduce competition. The U.S. Federal Trade Commission (FTC) has already blocked multiple healthcare and tech acquisitions, arguing that excessive PE roll-ups inflate costs and reduce market choices.

In 2023, the FTC launched investigations into PE-backed hospital acquisitions, citing concerns that investor-driven cost-cutting negatively impacts patient care. At the same time, cross-border M&A is under increased scrutiny, with governments imposing stricter foreign investment reviews, especially in technology and defense sectors.

For private equity firms, navigating regulatory risk is now just as important as financial modeling. A well-priced deal means nothing if it gets stuck in antitrust review for months or faces retroactive scrutiny.

Private equity dealmaking has always evolved in response to macroeconomic and regulatory pressures, but today’s environment requires even greater adaptability. Financing constraints, valuation mismatches, and heightened regulatory oversight have forced firms to rethink how they structure deals and execute exits.

Earnouts and minority rollovers are becoming essential tools to bridge pricing gaps, while private credit is emerging as a dominant funding source for leveraged buyouts. At the same time, regulators are watching PE transactions more closely than ever, challenging firms to demonstrate real long-term value creation rather than short-term financial engineering.

The firms that embrace flexibility, navigate compliance risks proactively, and focus on operational execution will be the ones that lead the next era of private equity success. Those that fail to adapt? They’ll struggle to deploy capital efficiently and find themselves losing deals to more innovative competitors.