Report participants anticipate the Trump administration will positively affect deal activity
Despite the uncertainty introduced by a second Trump administration, potential US tariffs, and a looming federal election in Canada, private market leaders are optimistic that dealmaking conditions will improve in 2025.
That’s according to the PE Pulse 2025 report published last week by Torys LLP, in which 72 percent of report participants said they expect increased deal activity in the year ahead, while another 20 percent anticipate more buyer-friendly market dynamics.
Between November and December, Torys interviewed 25 leaders in private equity, infrastructure, secondaries, and venture capital funds, as well as institutional investors and other alternative asset managers. The report sought insights into how private markets will fare in 2025.
Stefan Stauder, a partner at Torys and co-head of the firm’s direct investment practice, says he was surprised by “the overarchingly positive sentiment” of the participants’ responses since few macroeconomic factors had shifted beyond lowered interest rates.
However, Guy Berman, a partner at Torys who co-heads its direct investment practice with Stauder, says this optimism could be partly attributed to the fact that they spoke to some of the participants “post-Trump being elected but before the tariffs became a real viable threat.
“The optimism came from the fact that we are back to a lower interest rate environment, inflation seems to be under control, supply chain issues from COVID seem to have worked themselves out,” Berman says. “During COVID, our clients found it was really difficult in some cases to look at the last couple of years’ of financial data when trying to extrapolate and come up with a valuation.
“We've now had a couple of years post-COVID where financial statements have begun to normalize, and so our clients could have a lot more conviction on their investment thesis and price,” he adds.
According to the Pulse report, that optimism has been somewhat dampened by geopolitical uncertainty. Forty-eight percent of responses identified uncertainty around the Trump administration as a potential challenge for dealmaking this year, while 28 percent of respondents said they were concerned about the impact of tariffs.
Respondents also worried that some of Trump’s proposed policies would lead to higher interest rates and inflation and expressed concerns about Canada’s increased capital gains inclusion rate – which, if made into law, would have substantial return implications for private equity investors.
Still, the report’s overarching outlook is positive. Eighty percent of participants said they believed the results of the US election would positively impact deal activity. Participants said having the election behind them meant that market participants generally knew what to expect moving forward. Some said they expected a loosening of antitrust regulations under the US Federal Trade Commission and business-friendly tax policies, both of which would help facilitate deal flows.
During the Biden administration, “there was a lot of focus, particularly for private equity roll-ups… under [FTC chair] Lina Khan, and a fair bit of enforcement pressure on private equity firms,” Stauder says. That pressure will likely abate during the Trump administration, he says.
“The other expectation is generally that there's this whole focus on deregulation wherever possible. That leads people to think that the banking sector will stand to benefit from looser regulations,” Stauder adds.
The report’s participants expect certain sectors to benefit from a Trump presidency. Sixty-four percent of respondents identified traditional energy as one of these sectors – a win that could result in a slowdown and lowered asset valuations for energy transition sectors.
Other sectors that participants expect to do well include financial services (36 percent), technology (36 percent), domestic manufacturing (28 percent), and defence (24 percent).
If the US does end up imposing and expanding tariffs on goods from Canada or other countries, participants expect more private equity interest in US companies that manage their supply chains.
“Uncertainty is never a dealmaker’s friend, and that is now the footnote with which the [Pulse] report should be read,” Stauder says. “We have to deal with – on both sides of the border – tariffs, retaliatory tariffs, whatever that may mean for businesses, inflation, potentially not further sinking interest rates.
“All of that is a question mark we all need to try to whittle down over the ensuing weeks,” he says.