This report provides a deep dive into these issues, exploring how firms adapt to this new environment and what the future holds for private markets in the UK.

Labour’s Economic and Tax Reforms: Implications for Private Markets

The Labour government has taken a bold approach to reshaping the UK economy, implementing tax and regulatory changes that directly impact private equity investors and asset managers. While early concerns suggested that these changes could significantly dampen investment activity, the reality has been more nuanced. Some policies have introduced new burdens, while others have created fresh incentives for strategic deal-making. The revision to carried interest taxation is a prime example. Initially, Labour proposed treating carried interest as income, which would have subjected fund managers to a 45% tax rate. However, after extensive industry lobbying, the government settled on a 32% capital gains tax rate, with a 72.5% multiplier adjustment. This preserves some of the tax advantages that private equity professionals have historically enjoyed, allowing firms to remain competitive in attracting top talent.

Another key shift involves the inheritance tax system. The cap on 100% relief for business and agricultural property at £1 million is expected to have a ripple effect across private markets. Business owners, particularly those in family-run enterprises, may accelerate exit plans to optimise tax efficiency before the new regulations take full effect. This could lead to a wave of deal activity, particularly in sectors where succession planning is critical. The implementation of the OECD’s Pillar Two global minimum tax rules adds another layer of complexity. Large multinational firms backed by private equity will now be subject to a minimum 15% corporate tax rate, forcing investors to rethink their tax structuring strategies. As a result, firms are increasingly looking at alternative jurisdictions for structuring new funds and acquisitions, potentially shifting capital away from the UK.  Meanwhile, the Financial Conduct Authority (FCA) has ramped up its oversight of private markets, issuing a clear warning to asset managers that valuation transparency and conflict-of-interest management will be a top priority in 2025. The regulator has emphasised the need for independent valuation committees, stricter governance of continuation funds, and enhanced investor reporting. Fund managers who fail to comply with these evolving standards risk significant reputational damage and regulatory penalties.

Market Performance: A Look at 2024 and 2025 Projections

Despite the challenges presented by regulatory changes and economic uncertainty, the UK private equity market has shown resilience. Total deal volumes increased by 4.4% in 2024, while cumulative deal values climbed nearly 12%, reflecting renewed confidence among investors. While London continues to dominate deal activity, accounting for 44% of total transactions, regional markets have seen substantial growth. Scotland, for example, recorded a 20% increase in deal volumes and a 35% jump in total deal value. The North West also experienced significant momentum, with deal volumes rising 23% and total deal values increasing 41%. These trends suggest that investors are increasingly looking beyond London in search of attractive opportunities.

From a sectoral perspective, Technology, Media, and Telecommunications (TMT) emerged as the fastest-growing segment, with deal volumes up 19% and total deal values surging 58% to exceed £40 billion. Business services remained the largest sector by volume, accounting for 43% of transactions, while consumer goods and retail saw a moderate recovery, with deal volumes rising 5.3% and values increasing 21%. Fundraising trends also reflect shifting investor preferences. In 2024, UK-focused private equity funds raised £26.8 billion, a 9% year-on-year increase, though still below pre-pandemic highs. Private credit funds, on the other hand, continued their upward trajectory, attracting £15.2 billion, a 14% increase over the previous year. Investors are increasingly favouring sector-focused funds over generalist strategies, with life sciences, fintech, and AI-driven business models seeing heightened interest.

Exit Activity: Challenges and Market Adjustments

Private equity exit activity remained subdued in 2024, reflecting the ongoing impact of economic volatility, geopolitical risks, and concerns over capital gains tax increases. Exit volumes declined for the third consecutive year, falling by 3% compared to 2023. More significantly, total exit deal values dropped by 20% to £46.1 billion, making it one of the most challenging years for realising returns on investments. One of the biggest hurdles to exits has been the widening gap between buyer and seller valuation expectations. With rising interest rates, buyers are becoming more cautious, seeking lower entry multiples to offset increased financing costs. Sellers, however, are holding out for higher valuations, leading to prolonged negotiations and, in many cases, stalled exit processes.

However, not all exits have faced challenges. High-quality assets in resilient sub-sectors, particularly in technology and healthcare, have continued to attract strong demand. These assets have often been pre-empted by strategic buyers, allowing private equity firms to achieve solid returns even in a slower market. For instance, the healthcare services sector saw a 15% increase in exit values, driven by strong institutional demand for stable, long-term revenue-generating businesses. Looking ahead to 2025, exit activity is expected to improve as market conditions stabilise. There is a backlog of planned exits that were deferred in 2024, and firms will likely look to capitalise on improved valuations as interest rates ease and liquidity in the market improves.

Secondary buyouts are also making a comeback, with levels nearing those last seen in 2021 and valuations up nearly 90% compared to 2023. The increasing role of private credit in financing exits is also a key factor, with alternative lenders willing to structure flexible exit financing packages to facilitate deals.

Case Studies: Notable recent PE transactions

Silver Lake’s £4.3 Billion Acquisition of Darktrace

One of the most significant transactions in 2024 was Silver Lake’s acquisition of UK cybersecurity leader Darktrace. The deal was valued at £4.3 billion and structured using a combination of private credit and equity financing, reflecting the increasing role of alternative lenders in major buyouts. Darktrace’s strong recurring revenue model and position in the high-growth cybersecurity industry made it an attractive target. The deal structure, with a 5.0x EBITDA leverage multiple, indicates confidence in the company’s ability to sustain and grow earnings despite broader market volatility. With 55% of the funding sourced from private credit, the transaction also highlights the growing shift towards alternative financing amid tightening conditions in traditional syndicated loan markets.

Bridgepoint’s Potential £1.6 Billion Buyout of Pets at Home

Bridgepoint is reportedly negotiating a £1.6 billion acquisition of Pets at Home, a business that has demonstrated resilience through economic cycles.

The UK pet care industry has shown strong customer loyalty and predictable revenue streams, making it an attractive target for private equity. This deal underscores the attractiveness of essential consumer goods sectors, especially in an inflationary environment. The lower leverage multiple of 4.7x EBITDA reflects the stability of the business, reducing financial risk while maintaining sufficient room for operational efficiencies and value creation. With 60% of the deal financed through a mix of private credit and traditional bank debt, it further demonstrates how financing structures are adapting to the current market climate.

Conclusion: A Market in Transition

The UK private markets are undergoing profound change, shaped by shifting tax policies, the rise of private credit, and evolving investor expectations. Firms that embrace these changes by integrating digital transformation, adopting AI-driven analytics, and focusing on sector-specific investment strategies will be best positioned to thrive. Regulatory scrutiny is increasing, and firms must adapt by strengthening governance frameworks, ensuring transparency in valuations, and managing conflicts of interest effectively. Meanwhile, alternative financing models are becoming the norm, offering new opportunities but also requiring careful risk management.

At Regal Capital, we are particularly focused on the future integration of public and private markets. As private equity continues to evolve, we anticipate greater crossover between traditional institutional investment strategies and publicly accessible vehicles that allow retail investors to participate in alternative asset classes. The expansion of private market exchange-traded funds and other innovative investment structures will blur the lines between public and private markets, creating new avenues for liquidity and capital formation. We look forward to being at the forefront of this evolution, identifying opportunities that bridge these worlds while maintaining the high levels of due diligence and strategic insight that define our investment approach.

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