With the predicted rebound in M&A failing to materialize, private equity funds are still chock full of investments that need to be sold. Industry officials say family offices looking to gain private market exposure could be an unexpected source of buyers.
Few officials pointed to anything beyond policy confusion to explain why the boom didn’t happen, the resulting market uncertainty, and a pricing logjam. Data from S&P Global Market Intelligence show that terminated private equity-backed deals rose to 14.6 percent in the first quarter, the third straight quarter of increases. The value of cancelled M&A was $131 billion in the first quarter, compared to $45.5 billion for the same period in 2024.
According to the chief executive of one private equity firm, this is upping the pressure on fundraising and getting cash back to investors: The less cash investors have the less they can’t be buyers in order to provide liquidity to sellers.
“It's kind of like a log jam. We all thought this would be the year that some of that would get unclogged but in some ways it's just more of the same. Sellers need to be more realistic about price expectations and take the hit. But that is not happening.”
Instead, firms are only selling the best businesses because they can still get a premium and a good return.
Sources say family offices, which don’t have many of the constraints of private equity, have an opportunity to step up and fill some of that gap with timely acquisitions for some of these portfolio companies. Families manage $5.4 trillion in the U.S., which according to S&P, is more than what is held by private equity.
“The power of SFOs and MFOs has really accelerated in the last two or three years, they're acting like really big investment houses now with levels of sophistication that's never been there before,” said Peter Hughes, founder and CEO of Apex Group. “I do think that they will be picking up some of that slack.”
Families have advantages over PE funds that can help in this environment: They don’t have fundraising cycles, distribution mandates, an perpetual cycle of buying and selling, and worries over internal rates of return. Instead, according to sources, they can make long-term strategic acquisitions — essentially be cash cows for families — that remain on the balance sheet.
One of the most high-profile examples is the Mars family’s ‘take private’ of Kellanova — formerly Kellogg’s — which is set to close in the coming months at a valuation of $36 billion, more than 16 times earnings.
Industry observers say families also gain other benefits from these acquisitions: board seats, influence, and the opportunity to build networks. And the setup can be attractive for companies as families can offer a founder-friendly ethos, compared to an aggressive owner that wants to buy, chop up, and maximize short-term profits.
“Family offices have a more attractive pitch to the CEO of a private company that is thinking about taking some liquidity from the business it has built,” said Charles Otton, head of Global Family and Institutional Wealth at UBS. “Companies can be very mindful of not selling to a deep, hostile private equity firm. So some family offices are positioning themselves very cleverly as well, saying ‘we're long-term focused family office money, we’d be a natural owner or partner for you, rather than a rapacious private equity firm.’”
PWC recently released the findings of a study on global family office deals, and it too showed a shift towards larger, complex deals and the enhanced operational capabilities and additional professionals they will need as a result. Club deals, with families collaborating rather than investing in blind pool funds, are also on the rise, said PWC.
How Did PE — and all of Wall Street — Misread the Market?
“Coming into the year, everyone thought the new administration was going to be really positive: From a regulatory standpoint we were going to see IPOs, there would be more mergers and more capital markets activity,” said the CIO of a large alternative asset manager. “That hasn't transpired. If you look at CEO confidence, it's on the floor and it's hard to imagine that changes anytime soon.”
And with continued volatility, mispricing is a big concern. PE firms may need to sell companies, but they also don’t want to take anything public and risk failure or sell at a price that will hurt IRR. And buyers are wary of overpaying.
There have been workarounds and exceptions. Global Payments acquired Worldpay from FIS and GTCR for $24.5 billion last month, for example. It all points to a need to reevaluate the value of businesses amid the disruption, and for PE firms to wait a little longer to see how tariffs play out and what the deregulatory agenda looks like.
The economic situation could change: M&A could pick up and the SEC could rewrite the IPO playbook and make being a public company far more attractive. But as things stand there is a large gap and families could fill it.
