Increasing carve-out activity, a competitive buyer market, and converging valuation trends point to a shifting backdrop.

The latest Carve-Out Survey from AURELIUS indicates that corporate carve-outs are expected to rise in 2025, with over 80% of respondents predicting an increase in the number of global corporates looking to divest non-core businesses. This is up over a fifth from our Survey a year ago, when it stood at 66%.

“The new year has brought no end to the uncertainty businesses have faced for half a decade now. Newly elected governments in the UK and US are making significant changes to taxation and regulation for many businesses, changes that can inspire corporates to reassess their strategic priorities, often leading to divestment decisions,” says Tristan Nagler, Partner at AURELIUS Investment Advisory.

The dominant reason for corporate divestitures in 2025 is the need to refocus on core operations, cited by 70% of respondents. The second most important reason will be the unattractiveness of non-core businesses, identified by 17% of respondents as a key factor. The necessity to reduce debt was only suggested by 9% this year, compared to 52% in our last Survey.

Certainty of execution will be key to winning carve-out opportunities: 54% of respondents expect that this will be the most important consideration for sellers, with offer price a distant second (33%). This may seem surprising – but is likely the consequence of today’s backdrop where financing can be harder and costlier to obtain, making prospective bidders’ ability to fund any agreed deal more important than in years past. Just 6% emphasised the importance of a buyer’s track record in the relevant sector.

The best investment approach to carve-outs is a value strategy according to over three-quarters of respondents (78%), with growth a distant second (18%). This is likely because of the complexity typically inherent in such a transaction, which requires tremendous resource and experience to facilitate smoothly. Following the extrication of systems and build-up of new infrastructure – which typically takes at least one year – firms can start to consider growth, but achieving independence is frequently a barrier to quick gains for investors.

The number of buyers pursuing corporate carve-outs is on the rise, according to 59% of respondents. This may be because it helps would-be buyers to cast origination nets wider, particularly useful in a time of compressed multiples reducing opportunities as sellers await a ‘better price’. It may also point to an increasingly competitive market where new entrants are attracted by high returns if they manage the complexity inherent in corporate carve-outs.

There is a growing alignment in valuation expectations, with 52% agreeing that the value gap between buyers and sellers has narrowed. This shift may facilitate smoother transactions and a more dynamic M&A environment. The rest of the respondents however were divided, with 24% disagreeing and the remaining 24% unsure.

Nearly two-thirds of respondents (62%) feel the PE industry is ripe for consolidation, highlighting the difficult backdrop facing investors over the last half decade. Ongoing uncertainty has meant portfolios have suffered, with experienced PE houses able to help steer some towards resilience, but with others struggling under the weight of hefty loans. Add to this the fact that compressed multiples have led to a reduction in divestments and it’s clear that many GPs’ investors are suffering from a lack of distributions – and this makes it harder to raise follow-on funds.

The reality is that traditional private equity firms have a long half-life and this means a sudden contraction is unlikely. What is more likely is protracted fundraises, missed targets, a shift to deal-by-deal funding, and firms in harvest mode rather than actively investing.

PE still needs better PR. The discussion around private equity’s responsibility to maintain its licence to operate has been ongoing for nearly 20 years since buyouts ballooned in the noughties. Nearly half of respondents (47%) believe the industry needs to enhance its efforts around its public image, while 43% neither agree nor disagree with this sentiment. The increasing scrutiny of the industry by policymakers may provide more impetus for GPs to convey the merits of what they do to a group beyond its limited partners. What remains a perennial certainty is the need for investors to create real value in order to stay relevant and thrive.

“We have long recognised that challenging times are accompanied by opportunities for those who are capable of finding them and then nurturing them to success,” stresses Tristan. “PE no longer succeeds through multiple arbitrage or leverage alone, whether through primary buyouts or carve-outs. These levers for driving returns are not available in today’s competitive and high-interest rate environment. Sustainable success will come from transforming operations of high-potential businesses, something AURELIUS has been doing for 20 years,” he continues.

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The AURELIUS Carve-Out Survey canvassed the opinion of over 120 professionals in the advisory, private equity and corporate space and was undertaken in Q4 2024.