A Shifting Landscape in Private Markets and M&A

Private markets and M&A activity in 2025 are entering a new phase, shaped by shifting macroeconomic conditions, changing investor sentiment, and structural changes in venture capital and private equity. While 2024 saw muted deal activity in many sectors, recent transactions highlight how selective but high-value dealmaking is rebounding.

One of the most relevant examples is Pinewood Technologies’ acquisition of Seez, which reflects broader market trends. The £33.3 million deal underscores the growing role of AI-driven solutions in the mobility and retail sectors. Pinewood’s move to fully acquire Seez, after initially investing in 2024, aligns with the increasing demand for AI-powered software in the automotive industry. The transaction also highlights the growing appetite for strategic acquisitions that enhance in-house technological capabilities rather than traditional leveraged buyouts.

At the same time, the UK public markets remain weak, with IPO volumes down 19% year-on-year in 2024, reinforcing the need for private companies to explore alternative liquidity strategies. The Pinewood transaction provides a template for how growth-stage businesses can position themselves as attractive M&A targets by demonstrating clear technological differentiation and integration potential.

These trends carry significant implications for early-stage VC-backed businesses. The exit environment is evolving, funding conditions remain selective, and strategic acquirers focus on businesses aligning with well-defined value-creation strategies. Understanding these shifts is crucial for founders, investors, and the venture ecosystem.

Why This Matters for Early-Stage VC Businesses

1. The Exit Environment is Shifting – But Not for Everyone

Liquidity events—whether through acquisitions, secondary sales, or IPOs—are critical for venture-backed businesses. However, data shows that not all companies will benefit equally from the evolving exit landscape.

The UK private equity market suggests that exit activity will surge in 2025. Still, bolt-on acquisitions and buy-and-build strategies will drive this, rather than broad-based M&A. Private equity firms and strategic acquirers target growth-stage businesses with clear technological differentiation and strong unit economics.

Meanwhile, public market exits remain challenging. Only six IPOs were recorded in H2 2024, with valuations struggling to hold post-listing. This reinforces the need for companies to prepare for longer holding periods and align themselves with potential acquirers early.

This means preparing for a longer runway to exit for early-stage businesses and ensuring their growth strategies align with PE value creation models rather than relying on traditional IPO paths.

2. M&A is Rebounding, But Selectivity is High

The resurgence of big-ticket M&A is a significant trend, but the data suggests that acquirers are far more selective than in previous cycles.

Key drivers of M&A activity include:

• Interest Rate Stabilisation: While central banks have been slow to cut rates, the expectation of lower borrowing costs makes deal financing more predictable. However, the cost of debt remains well above pre-2022 levels, meaning highly leveraged deals remain less attractive.

• Strategic Buyer Confidence: Boards and investment committees are increasingly confident about geopolitical and macroeconomic risks, leading to demand for UK-listed businesses.

• Industry-Specific Trends: M&A is particularly active in mobility, AI, and electrification, with PE and corporate buyers aggressively pursuing deals in these sectors.

For founders, this means that while M&A opportunities exist, they will essentially be sector-dependent and require alignment with clear value-creation strategies. The Pinewood-Seez transaction is a case in point, demonstrating how AI and SaaS businesses can position themselves as attractive acquisition targets by aligning with the evolving needs of strategic buyers.

3. Funding Conditions Remain Selective – Only Differentiated Startups Will Succeed

Despite some stabilisation in venture capital activity, funding conditions remain highly selective. UK venture capital fundraising remained significantly below 2021-22 levels in 2024, with only a handful of new funds closing above £250m.

The latest data on VC market dynamics shows that:

• Institutional LPs are prioritising later-stage funds over early-stage vehicles.

• Follow-on funding is increasingly concentrated among top-performing portfolio companies.

• Generalist VC funds without clear differentiation are struggling to attract new capital.

For early-stage businesses, this reinforces the need to:

• Demonstrate clear differentiation in their sector.

• Show profitability or apparent capital efficiency to stand out in a crowded funding environment.

• Align with sector-specialist investors who have a long-term view of their industry.

How Early-Stage Businesses Should Prepare

1. Strengthen Exit Readiness

With PE firms focusing on bolt-ons and strategic acquisitions, startups should prepare for earlier conversations with potential acquirers. This includes:

• Building relationships with relevant PE funds and corporates long before an exit is needed.

• Focusing on profitability and operational efficiency, as value creation is increasingly scrutinised.

• Developing a straightforward acquisition narrative, positioning the company as an attractive addition to a larger platform.

Given that the IPO window remains narrow, founders should view M&A as the most realistic liquidity path in the short-to-medium term.

2. Stay Flexible on Funding and Exit Strategies

While the UK IPO market remains weak, follow-on funding and secondary transactions show signs of life. Secondary stake sales accounted for 50% of ECM deals in H2 2024, highlighting an alternative route for founders seeking partial liquidity.

To navigate this environment, startups should:

• Maintain optionality between fundraising, secondary sales, and M&A.

• Engage with PE-backed portfolio companies that may be actively looking for acquisitions.

• Ensure financial discipline, as the availability of capital remains unpredictable.

3. Align with Investor and Acquirer Value Creation Models

PE investors are placing a greater emphasis on value creation planning, meaning startups need to think more like their potential acquirers and investors by:

• Demonstrating strong unit economics – key metrics like customer acquisition cost (CAC) and lifetime value (LTV) must be compelling.

• Strengthening governance and financial transparency to align with investor expectations.

• Focusing on sustainable growth rather than purely top-line expansion.

The most attractive acquisition targets will be those that enhance EBITDA, improve operational efficiencies, or add strategic capabilities to larger businesses.

Final Thoughts

The private markets and M&A landscape in 2025 is not about unquestioning optimism but strategic realism. While M&A is returning and investor sentiment is improving, the data shows that only select businesses will benefit.

The Pinewood-Seez transaction is a prime example of how the right combination of technology, scale, and market positioning can create value in today’s environment. As PE and strategic buyers seek to deploy capital, startups aligning with clear value-creation strategies selectively will succeed.

For early-stage VC-backed businesses, the message is clear: focus on differentiation, stay financially disciplined, and align with the value creation models of future investors and acquirers.

Opportunities exist, but success will come to those who are prepared to compete in a more selective, strategic dealmaking environment.

Have a great week!