2027 private equity industry outlook: People matter more than ever

Heading into 2027, the private equity industry outlook is fairly bullish. While some firms continue to struggle to exit investments made in the early 2020s, the lower middle market is also ripe with opportunities in areas like dirty jobs, hospitality and healthcare.

However, if you want to win any of these deals, you’re going to have to work harder, right-size your expectations and most of all, focus on building strong relationships across the board.

Keep reading to learn more about these top 2027 private equity industry trends, plus how to succeed over the next 12 months.

What are the top challenges for private equity in 2027?

There will be plenty of bumps in 2027 (as always). Look for the private equity industry to navigate challenges like uncertainty, fee pressure, stiff competition for fundraising, a sellers’ market and high interest rates.

Details on the top challenging trends for the private equity industry include:

• Uncertainty: Political and economic uncertainty continues to affect the markets and the private equity industry, with deals often slower to close or quicker to fall apart. Firms should also be prepared for the potential impact of the upcoming midterm elections, with polling aggregates suggesting that control of Congress may change hands.
• Fee pressure: Fee pressure is becoming enormous, with AI continuing to force changes to business models and making it harder for firms to justify investing in as many analyst-level roles.
• Workforce disruptions: AI-related hiring shifts and cutbacks have left younger professionals wondering what their futures look like in an industry where the path from analyst or vice president to director or partner is suddenly less clear.
• Competitive fundraising: Even as the possibility of a bubble lurks, AI continues to gobble up investor dollars by promising 20% returns, limiting the fundraising pool that’s available for private equity to pull from.
• Sellers’ market: A limited pool of high-quality deals means that sellers can afford to be picky, with many having multiple bidders to choose from and little incentive to rush into a deal.
• High interest rates: The Fed raised interest rates in September, and most analysts predict that they’ll remain relatively high, which pushes the cost of capital up and prices deals more tightly.
• Data center exposure: While data center investments are mostly limited to a handful of giant private equity players, smaller firms hold stakes in related industries like construction, risking exposure should fears of an AI bubble prove valid.

What are the top opportunities for private equity in 2027?

Despite the challenges ahead, private equity has significant room for optimism in 2027. Good deals are out there if you know where to look, especially for lower middle market firms that target businesses doing either non-glamorous but essential work or serving wealthy, retiring baby boomers.

Dirty jobs

Businesses that do hands-on dirty job work like HVAC, electrical, fire safety, concrete and construction are good bets in 2027. There are opportunities here, away from the shine of tech — if you’re willing to get granular, learn about what makes these kinds of companies succeed and build meaningful relationships with their owners.

Aerospace

It’s grim, but the wars in Ukraine and Iran have been good for the aerospace business. U.S. munitions stocks have been significantly depleted, so even if those conflicts end soon, the federal government will likely be spending to replenish its stockpiles for years to come.

Both wars have also demonstrated the evolving nature of modern armed conflict, in which drones, AI and robotics now all play prominent roles. Private equity firms investing in the aerospace and defense sector should be aware of this shift toward new types of weapons, which is changing how armies operate (and defense procurement requirements) in real time.

Travel and hospitality

Retiring baby boomers and a millennial and Gen X professional class that continues to prioritize remote work mean that travel and hospitality are hot. These groups have money, but don’t necessarily want to spend it at yet another Marriott or Sheraton, with boutique hotels, novel experiences and high-end experiential travel all drawing significant interest.

Private equity can look at this sector as both a real estate play and an opportunity to invest directly in travel and hospitality businesses. As with dirty jobs, you’ll get ahead by digging in, doing your research and finding niche opportunities.

Boutique healthcare

Baby boomers are also driving growth opportunities in the boutique healthcare sector. Many wealthier boomers don’t want to rely on Medicare alone and are increasingly signing up for concierge doctors and fee-for-service medical practices that cater to their needs without making them wait for an appointment.

More adventurous boomers (and their younger peers) are also embarking on wellness retreats, creating an intersection between healthcare and travel that’s worth exploring further.

How should private equity leaders take action to succeed over the next 12 months?

The private equity firms that succeed over the next 12 months will be the ones that make people a top priority. Companies that build meaningful relationships with sellers, strengthen referral partnerships and invest in developing their talent will open doors that would otherwise remain closed. But you’ll also need to adopt a realistic perspective on what deals are possible and be more patient with the process of getting to a handshake.

Here are key action steps that will help private equity leaders win in 2027:

1. Deepen referral networks

Referral relationships with law or CPA firms can help you find potential deals your competitors may miss, while also providing an insider perspective on a business you’re evaluating. This can be especially helpful in sectors like dirty jobs, where high-performing businesses aren’t necessarily jumping up and down to advertise themselves to potential private equity buyers.

2. Build strong relationships with sellers

If a seller likes you as a person, you’ve got a much better shot at getting a deal done. Especially in a sellers’ market, likeability is often a deal-breaker, because a seller choosing from several similar offers will almost certainly go with the buyer they connect with as a human being.

Do your homework to show the seller you respect their business. But get to know them as a person, too. Put yourself in their shoes and imagine what you’d like to see from a potential buyer.

3. Invest in the right people

Don’t let AI blind you to the fact that every business is built on people. You don’t necessarily need to hire as many quants as you used to, but having enough people who can connect with sellers, partners and investors is more essential than ever.

Take a long look at your hiring practices to figure out how to adapt them to the moment.

4. Embrace succession (responsibly)

Gen X (and even some of the oldest millennials) are taking over top leadership roles as boomers retire. But new leaders should recognize that the business model has changed, with fee pressure creating fewer opportunities for their younger colleagues in entry-level and mid-tier roles than were available in generations past.

Gen X executives who start thinking about how they can keep the career ladder open for those behind them will find themselves better positioned to attract younger talent and build a business that lasts.

5. Right-size your expectations

Don’t expect that you’ll earn 17-21% this year, with returns in the 8-13% range looking more realistic. Set expectations for your team and investors now so that everybody is clear on your projected ROI heading into the year (rather than setting people up for disappointment down the road).

Think of this as like hugging a cactus. A lot of deals right now will have some pain involved, but the sooner you face that part and get it over with, the quicker you’ll be moving on with your hike.

6. Understand your deal pipeline

The deal process has gotten longer and infused with greater uncertainty. Take the time to really map out your pipeline and figure out what you need to do each month during the deal process to maintain momentum. You don’t know for sure when it will be the right moment to buy, but you want to be ready when that time comes.

7. Remember how to be nimble

A lot of the deals available are smaller or more niche and may take more work to complete. You may also need to be ready to buy or flip a company with little notice.

Adopting a nimble, flexible mindset will help here. Think of yourself as an independent sponsor, willing to put a deal together through grit, hustle and chutzpah.

Read more

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• Does an asset purchase protect you from successor liability?
• Is it time for mid-sized construction firms to embrace private equity?