Private Equity in Q3 2025: Moving from Defense to Offense

[00:00:00] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. I'm Sean Mooney. BluWave's founder and CEO. In this episode, we have a special discussion about BluWave's Q3, 2025 private equity insights report, where we're gonna pull back the curtain and show you what the best business builders in the world are up to today.

[00:00:37] So the headline is essentially that the private equity industry and the business building world at large continues to get better and get better at a faster pace. And as I was thinking about how to explain this and what we're seeing is, is so often I only know how to think metaphorically. Something came to mind really around my son and so over the last couple years I've been watching my son learn the sport of fencing.

[00:01:07] He's new to it. A lot of people have been playing this forever, but he is new to it and he thought he was really interested in it. I was watching him play and I was like, everything was just moving so fast and the pace was just dizzying and it was like a blur watching these kids with, you know, swords and these special outfits on and they're kind of whacking each other left and right and moving back and forth and back and forth.

[00:01:29] And I was like, this is, you know, this seems like a lot like what it's felt like. It's this blur in the economy over the last couple years where it's like things are coming from every angle and it's back and forth and just when you think you're gaining, you're losing. And as I was watching him during his earlier matches, he played a lot of defense just 'cause he couldn't get a sense on what was going on.

[00:01:52] And so he would give ground and he would stay in the fight, but he just wasn't winning that much. And that's not a slight on him at all because he was brand new to it. But then eventually, what was fascinating, like anyone who's played sports, he started just acknowledging that this is gonna be a floor of activity.

[00:02:10] You're gonna be giving ground. You're gonna be taking ground, and you're just gonna have to slow things down and see through the noise. And eventually, as he was able to see through the noise, he started being able to see ahead and see what was coming. And really just frankly, live with it. And then the world as it slowed down.

[00:02:27] What he started doing was because he could anticipate what's going on or just get comfortable with the risks. He made this kind of shift from his back foot where he was playing defense to suddenly he started leaning towards his front foot and playing offense. And then lo and behold, when he took the idea that he is just comfortable with the noise, comfortable with the risk, and start seeing the world playing out and see further ahead, he started winning more matches.

[00:02:52] And that's exactly the way I think the economy has been over the last few years. We've had this blur of risk and turmoil and activity and nonsense, and people are going back and forth and they're playing to not necessarily to win, but not really giving 'em ground As a result, people are kind of like just holding steady, and I think that's the same in the, in the private equity industry, and you can't blame anyone for it.

[00:03:18] But I think what the private equity industry is doing something a little different than most in that now it's slowing down. They can peer through the noise, they can see it. They're comfortable with dynamic as it is, and we're seeing decidedly in our data that they're moving from their back foot to their front foot.

[00:03:35] And I think it's very unnatural for a lot of people because they still read the news every day or they see what's going on. They go, oh my gosh, the sky is falling. But at the end of the day, those who are willing and able to kind of move from the back foot to the front foot and go on the attack. They're starting to rack up winds and we're seeing that in our data.

[00:03:55] So let's talk about why do we think this is happening now? In some ways it's been happening and these are some predictions that we'll talk about later that we've made earlier that are really now coming and showing that it's, I think we're pretty on spot on with the kind of the visions we painted earlier, uh, or at the end of, uh, 2024.

[00:04:13] Anyways. And so why do we think that we're validating and that that private equity world is shifting from defense to offense? One, we know as a precondition that the economy continues to be good enough and it's actually is getting better. And so if you look at it, one of the things that, uh, I was recently listening to is Morgan Stanley's Thoughts on the Market podcast, and it was good to hear that they're kind of saying the same things we've been saying.

[00:04:40] And so Morgan Stanley, CIO, and US Chief Equity Strategist, Mike Wilson, has been talking about how the United States has been in a rolling recession through effectively the entire economy over the last several years, and now they're coming out and the data is showing so and so. When we look at the data around the economy, GDP continues to grow.

[00:05:02] One of the measures we look at is the weekly economic index that's published by the Federal Reserve Bank of Dallas. What's great about this is it comes out every week. You get a realtime read. You don't have to wait for the quarterly prints. I encourage other people to look at it and what you see, notwithstanding all of the noise and the, and the fear and the risk, the US economy continues to grow.

[00:05:22] So if you average kind of the weekly growth levels through year to date October 4th, we've grown 2.4% per week, year over year. Now, if you look at the weekly economic index year to date, it's showing 2.4% average weekly growth through year to date, October 4th. It's good. It's not great. It's not crazy. But what's important is you look at the rate of the rate of change, right?

[00:05:44] And so as we look at those same numbers compared to 2024, the numbers were 2% through a year to date, October 5th, I think through a year to date, 2024. Now 2.4% versus 2%, that's a 20% year over year increase in growth rate. So the economy is accelerating, notwithstanding all this noise. The US consumer has been kind of up and down, but amazingly resilient.

[00:06:08] The other thing that I look at a lot is US manufacturing production. So if you look at the s and p manufacturing, PMI, if you looked at last year, it was decidedly below 50, which means the US manufacturing base was not growing. It was retracting. Now, this year through the entire year, it's been essentially flat the entire year.

[00:06:27] And actually most of the time above 50. So we're starting to see growth. And one of the things, if you listen to the Morgan Stanley podcast and you listen to us and have listened to us before, manufacturing has been in a recession for the last few years and they are coming out. So there's a lot of things to look at now.

[00:06:44] Inflation continues to be sticky. That is a measure to this and, and it's not something to be taken lightly, but at the end of the day, 2.9%, which is where we are now, it's not the 2% target we need to be. But it's not that bad. It's, it's within historical norms and ranges of what people look for. And I've said this before and I'll say it again to 2% target.

[00:07:04] I think it makes sense a lot of ways, but let's call it for what it is. It's, it's somewhat arbitrary measure that was selected by a New Zealand central banker in the late eighties, and it was only adopted by the US as an official measure. If memory serves me correctly in 2012. It's important, we do not wanna let inflation get out of check.

[00:07:25] But it's something that like, let's not raise the alarm bells over 2.9%. You know, famous last words, but at the end of the day, I think it's in a good shape. The other thing, the job employment levels is slowing for sure. Let's not lose total perspective. 4.2%, which was the last measure that, that I'm aware of that's been produced is still at the hot end of full employment.

[00:07:48] When we get above 5%, that's when you start worrying. But. Arguably we're still at a hot, hot employment rate, even though it's not as good as the hyper hot levels that we had not too long ago. In some ways, you wanna have a somewhat reasonable level of unemployment because if it's super hot as it has been previously, it actually causes more inflation.

[00:08:09] So net net, the economy is good enough to do deals and what also supports that is we continue to have robust capital markets that are supporting deals. Lastly, what do we have here? We have an upcoming and ongoing rate reduction cycle, which is going to lower the cost of debt and has been lowering the cost of debt recently.

[00:08:30] Of the private equity firms, it's going to be providing fuel for investment, which is gonna add more of it into the economy, which if history repeats itself, rate reduction cycles typically lead to accelerating economic growth. Now the big risk that is out there and continues to be out there and will be out there as geo-economic risk and geopolitical risk.

[00:08:52] I think that will continue to be something there. But welcome to life. I've been talking with a lot of our younger team members recently with the battle, like has there ever been a time when it hasn't been crazy and when has it not? When I was a child in the eighties, I'd go to sleep every night and not making light of anything.

[00:09:07] But the big fear was nuclear war, and there was total consternation. Throughout the eighties and early nineties, and there was this kind of this beautiful period, this peace to end after the fall of the Cold War where things were relatively calm. But since then, this is just the world we live in. And so you gotta manage to live in this consternation, this churn.

[00:09:27] And by no means am I once again making light of this, but it is what it, it's. And so I think right now all things consider the economy's good enough and it's actually getting better. If you reduce the noise and just look at, look at the signal. I think the data says that, and most of the big prognosticators are saying the same.

[00:09:47] Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives that say, Hey, I'm not private equity. Can I still use BluWave to get connected with resources? And the short answer is yes, even though we're mostly and largely used by.

[00:10:06] Hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family companies. So absolutely you can use this as well. If you want to use the exact same resources that are trusted in being deployed and perfectly calibrated for your business needs, give us a call.

[00:10:28] Visit our website@BluWave.net. Thanks. Back to the episode.

[00:10:36] The other thing that we're seeing that says, what are signals that show you that the private equity is moving from offense to defense is the deal market. It doesn't feel like it's a great deal market, but when you look at the data, it's actually getting better and better. And so one of the things that we often look at is the published deal activities.

[00:10:56] If you look at what PitchBook has produced, they're saying the third quarter of 2025. Increased 11.7% over the prior year. Now that's not go go times growth, but that's pretty darn good growth year over year and certainly better than what we've been seeing in the beginning of the year. And so one of the things that we do and look at our data, which is actually a really good leading measure because we get called by the hundreds of PE firms that we work with for the due diligence resources they use to give them alpha and their processes.

[00:11:27] They call us at the point when they're ready to spend real money. And so we don't get the false signals like the number of sims that are out or the NDAs that are being distributed or signed. It's really like what are the number of projects and the rate of projects that are going on when people are wanting to spend real cash.

[00:11:45] And so if we look at what's going on, we saw a huge strengthening in the last month of the third quarter. And so July and August were a little bit kind of ho-hum, but then September, over August grew 110%. And then if we look at the activity level within due diligence, which are the projects that I talked about where private equity firms are spending a lot of money, and we look at Q3, 2025 versus Q3, 2024, and specifically look at commercial due diligence, which is an expensive product that is very important.

[00:12:19] It's an industry standard resource used by private equity from '25 to '24, the demand for those projects grew 43%. That tells me the PE firms are leaning into the future and you don't see that kind of growth unless you're confident and comfortable about the future because you're buying businesses based upon what's going to happen tomorrow, not what happened yesterday.

[00:12:42] And so a lot of the market has been waiting for businesses to grow into sufficient return levels, which means their businesses have, if they're coming out in these levels, have kind of rebounded from a lot of the consternation and they've gotten to be big enough. The economic conditions are great enough so that PE firms feel like they can do some things.

[00:13:01] And if you're a PE firm, you only get one opportunity to use that capital unless you have some really cool recycled provisions, which they have, but most people don't use. That means the private equity firms are looking forward and they're saying, you know, we're okay. We can see through this blur we've given ground.

[00:13:16] Now we're going on the offensive and we're gonna put the money to work because we think the next five years are gonna be pretty darn good. I think the same. So the last thing that we really see is like what is a, a significant measure that private equity firms are doing that tells us that they're leaning in and going on the offense and shifting from defense is that we're seeing them make meaningful investments in forward-looking AI and technology, which are substantial investments, but also playing for the future.

[00:13:46] And so they're moving away from the tactical. We're gonna save costs, we're gonna get right people in the right place for, for the future growth markets. They've done all of that already. Now we're seeing them make meaningful investments in tech and ai. And so how do we know that? Well, our data, which is generated by supporting the best business builders in the world.

[00:14:07] So hundreds of private equity firms call us to equip them with the specialized service providers They need to give them alpha in due diligence and value creation. If we look at the demand patterns that are coming in, so the demand specifically for business intelligence, analytics, and ai, drew wait for this 300% year over year in Q3 2025, and so they are going big time into this new world that's coming.

[00:14:33] Private equity industry, the way I think about them is having been one for close to 20 years is they are fast followers of fast followers. And so that first wave kind of came through last year. Now they've seen it. If you know the Mikey Life cereal commercial, you know, not many of you probably have, but people have, uh, the Gen X variety will have remembered it.

[00:14:55] These siblings have their younger sibling try some cereal and the young kid likes it and then they eat it. And that's private equity. And that's at least the way I was. Uh, but the end of the day, they're fast followers, are fast followers, and they're jumping in big. Now, the 300% stat on business ai. And analytics is a, is a really interesting stat.

[00:15:11] If we cut that down just to AI and ML advisory, we've seen demand grow year over year, 1600%. And so if you have these needs, let us know. We can make it easy 'cause we're equipping the best business builders in the world with a select cadre of really excellent providers. But this is something, if you are not on it, you need to get on it.

[00:15:30] That's the way the world's going. I encourage you to do what PE does and so you take all that together. There are three things that let us know that the world's happening. Economy is good enough. The deal market is recovering, which means they're buying into the future, recovering pretty meaningfully, even though it doesn't feel like it.

[00:15:46] The data's telling a different story. And then also we're seeing more and more really future large, substantial investments in the way the world is turning into going forward. The world's full of risk. Net net though, people are playing to win and they're just getting comfortable with this crazy noise that we all live in continue today and realize it's just part of life anymore. You can't just hate it, you gotta play it. And that's what people are doing.

[00:16:08] So let's next check in on some of the predictions that we made in the fourth quarter of last year. The first one that we made was that the M&A market was going to continue to rebound.

[00:16:20] And that was not so clear of a of a pick last year 'cause it was a pretty con consternation period. And so as we just talked about. Markets rebounding, and it's rebounding certainly in the second half of the year, more than the first half, and it's really starting to pick up. I think that's gonna continue to pick up pace through next year.

[00:16:37] This might be the first cracks in the dam of these portfolios that are being held by the private equity industry that are at this point, I'd have to check this, but it's not a risk to say that the portfolio average age is at, near or higher than the all-time averages ever held in private equity. So these deals are gonna start coming off the shelf more and more.

[00:16:58] The other thing that we predicted at the end of last year was that there was gonna be a manufacturing renaissance. One of the big things of this administration, and I think others, is that we probably went too far with globalization and offshore key strategic capabilities to make stuff that matter. So think about this as pharmaceuticals.

[00:17:22] Think about this as rare earth metals. Think about the steel, aluminum critical supply chain. Things that you kind of have to have strategically if things go bad. And so the idea is that there's gonna be a lot of stuff reshored, which is one of the big reasons for some of the policies that the current administration is bringing on.

[00:17:39] Morgan Stanley predicted this reshoring opportunity at $10 trillion going forward. So we had made a projection that they were going to start things coming in and start making a lot more stuff. What's kind of surprising is we're, we're seeing a lot of activity. We're seeing more manufacturing, we're seeing the PMI increase.

[00:17:56] I haven't seen droves and droves of expanding capacity yet, and so I think people are from Missouri on this. They still wanna see more. They want to see it happen before they start putting in real capital expense investments. I think we're gonna continue to see that. It just hasn't happened at the rate that we originally predicted, but, you know, wait.

[00:18:13] And the other thing I'll say that's kind of interesting, as I anecdotally see who's kind of leading these charges. The private equity industry has been doing this for a long time. They're long time investors in manufacturing. I don't think they're making the bigger, bolder bets yet, but where we are seeing a lot of big, bold bets on kind of the remanufacturing capacity and capability and kind of like the 3.0 world of manufacturing is in the venture capital industry.

[00:18:39] So look at some of the firms that are bringing back companies that make hardware, that make systems. You're seeing it immediately in kind of the Department of Defense areas. You're gonna see it a lot more in a lot of other areas. And so you're gonna see this activity occur not only within private equity, but also because venture capital, and I think the venture capital firms are taking these.

[00:18:59] Kind of new automated AI enabled approaches that are gonna enable to have really lean, kind of high mix, high volume manufacturing that that start with the best of the best. And I think there are gonna be lessons that the venture capital industry as they do this will and should a hundred percent learn from the private equity industry.

[00:19:19] And there's gonna be lessons that the private equity backed world will and should learn from the venture capital industry. And it's gonna be really exciting to watch. Both of those if you need, you know, that ecosystem. That's why the PE industry comes to us because we have the ecosystem that enables both of those.

[00:19:35] Hi, karma School of Business listeners, Sean here wanted to shine another spotlight. In one of the most important ways PE firms assess opportunities, they are the most active users of a product called commercial due diligence, also known as market studies. Why? Because they know the market always wins. And if you're confident that you have a good market, a solid strategy combined with a good team that can execute.

[00:20:00] The odds of success go way up. They also understand that specialized insights from focus providers are critical. 'cause beta and average insights aren't good enough anymore. As a result, top P firms call us. Pretty much every single day to get connected with the best of the best right fit providers in the world.

[00:20:21] This product is not just for those who do M&A. One source of Alpha and Edge is to do a commercial due diligence, including a growth strategy assessment on your own company, and you'll be amazed how much your insights and go to market plan will improve. Give us a call or visit our website@BluWave.net and we can give you excellence in Alpha with ease back to the show.

[00:20:45] The next projection that we made at the end of last year was that we are going to start seeing flatter organizations, and that's because of these AI tools. One of the things that I think is going to take some time, but we're seeing play out, is every person in your organizations are gonna have an AI agent that essentially reports to them.

[00:21:06] What we've been sharing with our own team here at BluWave is. Everyone should have someone working for them that is one of these large language models and has one of these Asians attached, and that's gonna be more and more important. Now, what that means for the labor force is you don't need more people telling, more people telling more people what to do in one poor soul at the bottom with their hand on the keyboard.

[00:21:25] You're gonna just need less of that middle management and no more people who actually do the stuff. And if we look at what's happening right now, I think the 1600% increase in the AI and ML advisory is a very good leading indicator of what's to come. Now, what that means for people who are in these organizations, particularly white collar professional services, is you better get very good at these AI and ML tools.

[00:21:51] And what I tell my own children is, or, you know, college and high school, is, you better be very good at this. Because when I came outta college a long time ago. I got to act like a 22-year-old when I was a 22-year-old, but I said like, you're gonna have to act like a 25-year-old that are the 25-year-old equivalent of even three years ago.

[00:22:09] And so you get better, get very good at these tools, and if you do so, you will thrive. The downside of of these flatter organizations is that it's going to probably leave a lot of people in the lurch, and it's gonna be scary. It makes me sick to my stomach when you think about it. But at the end of the day though, what's gonna happen is what's gonna happen.

[00:22:31] And so you can either run towards it and thrive or you can resist it and just try to survive. If you go in my own home, we're trying to preach, like run towards this, let's embrace it. Read this great book called Who Moved My Cheese. It's like 40, 50 pages. It'll change the way you think about all this stuff.

[00:22:47] And so if you do all of that, it's one of the most exciting times in history to be a business builder because you can build amazing, fantastic place things. You can empower your teams to do superhuman things in a way that requires so much less resource than it ever has before. If you don't have it, you know, as simple as like the Gemini app or the chat GPT app, put it on your phone and start at the very release and just start talking to it every day.

[00:23:14] I do it every single day. I think it's making my wife a little jealous. So it's, I probably have a lot of, uh, you know, a lot of conversation about a lot of stuff and it's empowering my inces curiosity in a way that's highly annoying to many people in my family. So, with that aside, get going on this, it's gonna benefit you immensely.

[00:23:30] It's gonna be super exciting. And I strongly think the flatter organization projection is going to continue to occur. So make that as an organization a priority in terms of are you playing to win in the future? And if you're a team member or worker, know that this is coming as well and play to win. The next projection we made at the end of Q4, 2024 was that inflation was gonna continue to be sticky.

[00:23:56] And so I think there were some prognosticators saying it's gonna keep on going down. It's go down to 2%. I don't know that this was the most revolutionary projection, but if you just look at the basic numbers, which is what we do, you don't overthink it. We're running deficits, we're weakening the dollar, we're continuing to run deficits, and if we don't figure out some other way around it, around some of these costs that we have institutionally and systematically across our entire country, inflation is gonna continue to grow because we're at the point now where we have to lower rates, which is gonna put more fuel in the fire, but we still have the sticky inflation, so.

[00:24:30] It's gonna continue. I'm not expecting inflation to go down to 2% anytime soon, but I wouldn't be surprised at the same time to keep it around 2.9 to low threes. And at the end of the day, that's fine. It's like I don't think you necessarily have to absolutely be at 2%. Now, you certainly don't want it above three point a half, but I think we're in a range that's relatively healthy, that lets us reinflate our economy that accelerates GDP, that will lower deficits and put us back in the game.

[00:24:59] So it's a delicate dance. I mean, it's a little bit like landing a B 52 on an aircraft carrier, but it can be done. It has to be done. And so I think you're gonna continue to see stick inflation. I don't see us getting back to 2% inflation anytime soon, but if it stays in this current area, I think I'm also totally okay with it.

[00:25:17] The last projection that we have and that we made last year was that the next economic cycle is underway. So as we talked about GDP is growing, inflation is stable, consumer markets are, you know, not the best in the world, but they're stable. And you've got manufacturing that's signing, showing signs of growth.

[00:25:39] Lastly, you've got a fed rate reduction cycle, beginning virtually every time. We've seen that before. What happens? next is growth. 'cause we are adding fuel into the tank of the economy and it's going to start taking off. And so certainly over the next, you know, few years, we should continue to see economic acceleration.

[00:25:58] I mean, I firmly hope that we do not go back into one of these 15 year mega cycles where the Fed and our legislative leaders decide to keep rates at near zero, because I think that caused a lot of long-term damage in the long end because we didn't ultimately get back to being disciplined. But I do think we're gonna see a pretty good period through the rest of this decade, and as a business leader.

[00:26:21] You always need to remain agile, but you also have to play into these rising tides at the same point. So as at BluWave, we are making heavy investments. We are keeping our hand on the wheel and we're keeping our foot agile because I think there's gonna be a lot of hit the gas, hit the brakes, go left, go right along the way.

[00:26:37] The world is not gonna just go straight up into the right, it's gonna be a sign curve, maybe at an angle, but net net we think it's gonna continue to go up and that's how we're playing the strategy on our own book here. The proof will be in, in the pudding. Time will tell. I think the predictions that we made in the beginning of the year largely are right on track to will be on track.

[00:27:00] The big risk that remains out there that continues is the geopolitical element of what's going on in the world. That's part of the world since I think we've all been kids, so we just have to play it and manage it. It's an exciting time to be a business builder. I hope this information informs your own strategies.

[00:27:17] If we can help you play the field and connect you with the resources you need to get it right the first time, give us a call. We're doing that with the best business builder in the world, otherwise, and we can do the same for you. Thanks for listening. We hope this ads value.

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[00:27:59] In the meantime, if you want to be connected with the world's best in class private equity grade professional service providers, independent consultants, interim executives that are trusted and deployed by the best business boards in the world. Including many hundreds of the top private equity firms and thousands of portfolio companies, and you can do the same whether or not you're in the PE world.

[00:28:18] Give us a call or visit our website@BluWave.net, B-L-U-W-A-V-E and we'll support your success on. The views and opinions expressed in this program are those of the individuals presenting and do not necessarily reflect the user positions of any other persons or entities, including those referenced herein.

[00:28:37] No representations, warranties, financial, legal, tax, or other advice are made herein. Consult your advisors regarding any topics discussed during this episode.

Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.

BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.