When BlackRock announced its $12 billion acquisition of HPS Investment in late 2024, it sent a clear message: private capital isn't just surviving – it's transforming. After two years that tested the industry's resilience, this mega-deal signaled a shift in the narrative. The extended period of challenges throughout 2023 and 2024 reshaped how firms approach value creation, talent management, and operational excellence.

The Reality Check: Navigating Through Extended Headwinds

The North American buyout market tells a detailed story of resilience and adaptation. Dechert's analysis shows clear patterns in both deal volume and value:

The data reveals significant quarterly variations in both deal volume and value throughout 2023 and early 2024. While market conditions have been challenging, activity levels demonstrate the industry's underlying strength and adaptability.

"What we've observed across our client base is that 2023 and 2024 weren't just about weathering the storm – they were about fundamentally rethinking how private capital creates value," notes Frank Scarpelli, CEO of SparcPartners, a private capital advisory firm that partners with investment firms and their portfolio companies.

Industry sentiment reflects both challenges and opportunities:

The Private Credit Revolution: A Decade of Transformation

Perhaps no trend better illustrates the evolution of private capital markets than the remarkable growth of private credit:

This exponential growth represents a fundamental shift in private capital markets. The sector has averaged approximately 15% annual growth since 2010, with acceleration in recent years. More tellingly:

This high adoption rate of private credit solutions in acquisition financing represents a dramatic shift from traditional financing models, highlighting how the industry has evolved to create more flexible, efficient funding structures.

The implications of this growth are far-reaching:

1. Deal Financing Evolution
   • Increased use of asset-backed securities (ABS)
   • Growth in directly originated loans
   • Rise of hybrid financing structures
2. Market Impact
   • Greater flexibility in deal structures
   • Faster execution timelines
   • Enhanced ability to support complex transactions

Making the Most of the Momentum

"The real differentiator moving forward isn't just access to capital – it's the ability to identify and execute on value creation opportunities systematically," says Scarpelli. "Firms that built robust operational capabilities during the downturn are now seeing those investments pay off."

The data supports this observation:

• 89% of firms maintaining or increasing headcount
• 63% utilizing specialized financing solutions
• 34% focusing on operational improvements to counter economic headwinds

Three strategies stand out for firms looking to capitalize on the improving environment:

1. Integrate Operations and Investment Thesis The most successful firms aren't separating deal sourcing from operational improvement anymore. When operational due diligence directly informs investment thesis development, it leads to better deals and faster value creation. This integration requires:

• Early involvement of operating partners in deal evaluation
• Clear value creation plans before closing
• Alignment between investment and operating teams on priorities
• Regular reassessment of value creation opportunities

2. Prioritize Human Capital Development The war for talent isn't just about hiring – it's about building capabilities. Leading firms are investing in comprehensive talent development programs that align with their value creation strategies, encompassing both investment team capabilities and portfolio company leadership development. Key focus areas include:

• Technical skills in data analysis and digital transformation
• Change management capabilities
• Cross-functional collaboration
• Industry-specific expertise

3. Leverage Technology Strategically The focus has shifted from implementing technology to leveraging it for competitive advantage. Successful firms are using technology to enhance human decision-making, not replace it, creating scalable platforms that support both deal execution and portfolio company improvement. Priority areas include:

• Deal sourcing and screening automation
• Portfolio monitoring and reporting systems
• Operational improvement tracking
• Risk management and compliance

What This Means for You

‍If you're in private capital, 2025 could be your year – but success requires a different playbook than in past cycles. The winners won't just be the ones with the most capital, but those that have built the operational capabilities to deploy that capital effectively.

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