Private Equity’s Resilience and Q2 2025 Economic Trends

Sean Mooney: So today we're going to talk about what we've seen. Encaptured in the BluWave Private Equity Insights report for the second quarter of 2025. With all candor, this is probably one of the more interesting quarters that I've ever seen, and I think probably one of the more illustrative quarters that describes kind of the, the private equity way in terms of how they respond to disruption, understand what's going on.
Take action and then adjust and move and shift and take action and move forward and adjust and move and shift. And so this is a really terribly interesting quarter and probably one of the more fascinating ones I've seen [00:01:00] before. Um, maybe to start things off, I feel like, and as I've said this before, I feel like we've all been living in kind of perpetual stop and go traffic since COVID.
So we had COVID, kind of turbo stimulus that came in, hyper overheated, our macro economy, and then kind of everything kind of like the engine, almost like completely stalled out as inflation kind of out of control. And then everything kind of started grinding to a halt. And you know, then we started taking action.
We started getting out of control. Really a lot of of the economy, if you look at the data, was in recession. If you pull Barr, GDP, particularly 2002, 2023, in parts of 2024. You saw the manufacturing industry in mostly recession. You saw this in healthcare. You saw this in kind of non AI tech. And what happened though since then is the economy would get going again, and then something would happen.
There was a fender bender and the stop and go traffic would come to a stop again. So. It would get going, and then you've got [00:02:00] inflation, it'd get going. Then the elections that would occur. Then you have a regional wars, and then you have April 2nd the tariffs. And every time, somehow this amazing economy, which is surprisingly resilient, just picks up speed again.
And I've, I've, I've been kind of fascinated and, and, and once again, just amazed by how resilient our economy has been. And one of the things that I was, I was listening to most recently was a. It was a discussion by Morgan Stanley's Chief Investment Officer, and it was hardened because he agreed with a lot of the things that we've been saying for the last, you know, at this point north of a year where he said, you know, we're moving now from a rolling earnings recession to a rolling recovery.
And I think that very much fits with the metaphors we've used with this. Stop and go traffic. And what I think is, if you look at our data, and we'll talk about some of the disruption that occurred in the second quarter here, but when I look at the data, it. It really looks like we've been on this bumpy bottom of an [00:03:00] economic cycle.
We're getting ready to introduce stimulus with the, the, the large tax bill that was introduced and signed. We are getting ready to lower rates and so I believe that we are phasing into the next three to five year growth cycle, and it's always bumpy at the bottom and it's never straight up into the right, but we're gonna be doing a sign curve up into the right over the next three to five years and getting into more of a traditional.
Economy, a traditional cycle, not one of these 15-year kind of fed fueled mega cycles. And so with that kind of framing, let's talk about what we saw in the second quarter. And what was kind of fascinating in the second quarter is. Going to the end of the first quarter, everything, all our signals were booming.
And so if I look at our year over year volumes, just absolute volumes that were coming in, in, in March, they were up 45% year over year. Every banker we were talking about was getting ready to bring all these deals to the table. The, the, the [00:04:00] deal economy was getting ready to roll. I think performance was good.
People were excited about deregulation, excited about lower taxes, and they were concerned about the magnitude of what then occurred in April 2nd. And I think everyone, we had seen some things start to slow down in March, in anticipation of April 2nd, but no one could have predicted what. Was ultimately unveiled on the world.
It was much bigger, much more expansive. It was a cold cup of water thrown on the faces of business builders, and no one had was ready for it. And so what we saw then was this shock on April 2nd, and then this jolt and things came to a. Kind of a screeching halt once again into like fender bender, go traffic went to stop traffic.
But then as the quarter progressed, what was really fascinating is we see these projects come in from many hundreds of private equity firms and thousands of their portfolio companies, which gives us the lens into what the best business builders in the world are doing, where they're doing it, why they're [00:05:00] doing it, how they're doing it, how this changes in time and overtime.
What we saw was they all started kind of measuring the field again and then taking measure of redo there. Bracket on that. What we saw there is they all started taking in information. They started analyzing what was going on. They started formulating action plans, and then we saw them roll into action.
After they decided what to do and then iterate rapidly. And so we've talked about this before. If, for those of you who are interested in this kind of framework and thinking, it looks a lot like what's called an OODA loop, and this was formulated by a military strategist named Colonel John Boyd, really coming out of World War II and into kind of future campaigns where it's a decision making process of where you or you observe what's going on.
You orient slash analyze, you decide what you do, you act, you see what happens, and then you go all the way back and see what happened. Analyze, decide, act. And so we saw that once again, we saw that during COVID. We saw that during the [00:06:00] inflationary periods that came out of that. We saw that during the election period.
We saw this during during the second quarter. And so what happened was, as you look at the second quarter, now, we've gone from the April boom cycle to the dramatic halt. Once again, not only the PE sales came in, but so did the macroeconomic one. So we saw the s and p manufacturing pmi.
We saw the s and p manufacturing. PMI go from 53 ish percent, which signals a pretty good expansion of people making more things in the US and dropped right down to just over 50. 50.2. And so that means we're like highly neutral. They're not expanding on contracting, but that's a pretty big pullback. We saw a consumer sentiment plunge from around 65 in February, all the way down to 52 in April, and then we saw the VIX go up in April from kind of mid high teens.
Which is like normal time, [00:07:00] going all the way up to mid fifties, and I think at some point it might have been even a little bit higher. And so you think about the VIX for, for those who don't know, the volatility index, it's really a measure of fear and anxiety in, in the business world, when it goes really high up, there's a lot of volatility, which means there's a lot of fear, there's a lot of anxiousness.
So it spiked in April to, you know, towards the historical levels of high. All of that was because no one had thought that the tariffs were gonna be anywhere near as large as what came out.
And then what happened is private equity started going through their OODA loops, and [00:08:00] so we saw activity within private equity absolutely in April.
Go down about 15% year over year after being up nearly 45% year over year. So we saw a big pullback in April. We saw, as you can imagine, in the manufacturing world, projects that were in that sector, we saw that world go down, you know, 29% year over year from an absolute activity level which was kind of striking.
And then what we saw was, once again, the private equity firms. They analyzed what was going on. They were observing what's happening, and then as the quarter progressed, we saw them leap into action. And so what happened in May after manufacturing went down 29% year over year. Well, a lot of the private equity firms.
A took action to secure the safety of their companies, doing tons of tariff activity, logistics, activity, procurement activity of everything they could to kind of reorient their supply chains for success. But [00:09:00] then what we also saw was a huge amount of actual underlying activity related to making growth investments, investments in new manufacturers themselves.
Because there was a realization that these are gonna cause these policies are gonna cause a massive amount. Of reshoring of manufacturing capabilities, which if you recall from our fourth quarter end of year report from last year and even previously last year, this is a strategic initiative to reshore manufacturing, not only to recreate middle class jobs, but also from a strategic perspective as it relates to geopolitics.
So we own the means of our production, and so we saw OODA loops, observation orientation decision, and what happens in May. Manufacturing-related activities in that sector goes up 20%, 27% in May, another 14% in June. The other thing that we saw was that private equity kind of looked through all of this noise during the second quarter [00:10:00] and started making very fundamental investments in technology.
and so This was really throughout this whole pause and period. And so in March we saw technology activity, absolute project volumes go up 54% year over year. And then April, we saw it go up 70% year over year in May. It was a little bizarre. It actually kind of was more like five 10% up. And then I think as people started leaning into what's going on and the AI stuff is coming out, and it's a buzzword in everywhere, we saw AI activity in June for projects related to not only AI but data, but but also kind of, um, the software tools that use ai and then also AI enablements themselves in Jo, in June we saw that go up 118%.
And So as the pro, as the quarter progressed, private equity observed what was going on. They analyzed it. They decided what to do [00:11:00] both in terms of this black swan that flew by on April 2nd, but also longer term. And they started hitting the gas. And so then just as we saw kind of in pe the rest of the world started waking up eventually too, as they saw that these tariffs at the end of the day are getting accepted.
They're getting rewritten. Were rewriting kind of the basis of trade across the country in ways that I think has surprised most, including me. it, it's, it's been much more kind of, um, effective in the implementation than I feared. Um, and then suddenly what happened is you, you then saw PMI go from 50.2 in April.
All the way back to 53 again. So the manufacturers in our com, in our country started expanding again. The consumer sentiment index that we previously saw, plunge down to 52 in April, is now back above 60 in June, right? So the hu everyone's like, oh, it's gonna be okay. And then the volatility index went [00:12:00] from the mid fifties all the way back down to the mid to high teens again.
And so we kind of went through this not only as an industry in private equity, but also as an economy saying, wow, we were all kind of shocked and awed at the beginning, but then we realized, you know, this looks like it might actually be working Now. Time will tell. There's obviously things that we're all still concerned about in terms of inflation.
I think the, the, a lot of the consensus right now on inflation is that they, it's gonna be kind of a one time push through, and then this gets kind of priced in. The end of the day, it's just a quick aside. Here's how I, I view the tariffs. It's politically not palatable to say we're raising taxes, but we have to because of all of the debts that we've taken on, not only before COVID, but particularly in COVID when we introduced this huge amount of stimulus into the world.
And so it's just politically not. Acceptable in this, in this age, or [00:13:00] certainly in this votership to raise taxes. But you can do tariffs. And so the way I'm viewing the tariffs is this is essentially a tax increase that we can push through that will help us fund the government spending that's underway.
Now, I think a lot of us who realize the the, the kind of the great, um. Challenges that we have as a nation regarding to our, related to our government spending overall. I think we all still wanna see government spending going down, but it, we will, you know, we'll have to wait and see what comes with that.
Now here's a quick, another side that I just find very interesting. If you were to over late, today's revenue against pre COID 2019 government spending, we'd be in a, we'd be in a surplus right now. And so just let that marinate. I think there's a, there's a lot of expense that we justifiably put into the government spend as we try to not recreate the conditions that created the Great Depression in the twenties when all the spending got pulled in.
[00:14:00] So we learned that lesson. The problem is we never took our foot off the gas and we haven't taken that extra spending off. Now, I, I'm not trying to venture into anything political. I'm trying to say just as it relates to spending across all categories. I think most of us can agree that we're spending a lot.
That's gotta change. And so please don't take that as any one political affiliation or another because we are absolutely agnostic here, but from just a means. And you gotta live by your own means. It's something that I think, I think most of us can agree on, that we're, we've gotta figure out more ways to, you know, kind of address our, our spend versus our revenue.
So take that aside. What have we seen then coming within private equity? We, we talked about in the beginning, in March. Booming activity. April we're really a lot less. And then in May we started seeing kind of five to 10% increases in absolute volume. In June we saw the same thing, but then July, as we looked forward outside of that quarter, we started seeing.[00:15:00]
Very high ramping of activity. So 25% year over year increase in absolute volumes. And so you, you go from boom in March, bust in April, may and June. People kind of calibrating, seeing what's going on, breakout in July. I think that bodes very well for the rest of this year and I think that at the end of the day it's gonna bo even better for 2026.
One of the key data things that came out, I think that people have been concerned after the quarter. Was the jobs report as they recast the jobs report. One of the things that, I, I think was, um, evident, at least in the numbers that were produced was that maybe the job market isn't quite as hot as people thought.
One thing I'd like to just reframe for people, you know, so we went from a 4.1% unemployment to a 4.2% unemployment. 4.2% is still very, very much in the hot range. It's really when you start getting above 5% unemployment that you're signaling some, some meaningful issues in the [00:16:00] job market. But if we're still at 4.2%, that just gives us an indication that when coupled with 3% growth in GDP, you've got consumer sentiment strong.
You've got the PMI expanding, you got 4.2% unemployment. The economy is kind of shockingly in, in decent shape. I think all of that is giving business builders a private equity, more and more conviction that it's, it's time to go. One of the things that we haven't seen yet is a huge breakout in the deal market.
I think we've seen some of that. We've seen that some of the PitchBook data showed the first quarter exits were about 6% up in private equity. Now that's, um, that's, you know, decent, but it's not the big breakout that we're expecting. One of the things that if you look at that the same thing in that quarter is that the deal the new deal to exit ratio was about three times.
So for every one deal, they're exiting. They were buying three more companies. And [00:17:00] so as a result, what we're kind of meaningfully seeing in PE land is that they're still adding more than they're selling, as I think a lot of us have heard in the PE world. The LPs are saying, listen, private equity firms, if you want more capital, you gotta return capital.
The average age of the portfolio company's holdings in private equity is at or near all-time highs right now. So what we're teeing up for, I think what we're setting up for is eventually a huge breaking of the proverbial dam where lots and lots of companies are gonna be coming to market. Now, whether we see that in the traditional peak deal season, in post Labor Day this year.
I'd be kind of surprised by that, but I think it certainly set something up big time for 2026. Um, we'll find out. 'cause I know from our market checks in the first quarter of this year, there are literally thousands of companies that have sims ridden by investment bankers that are ready to come to market right now.
Um, so we could be surprised, um, be on the lookout for a ma a major deal [00:18:00] breakout. Um, and, you know, I'm, I'm getting out of that, that kind of prediction business because it's just too hard to tell. But I think everyone can agree that there's a lot of companies that need to come to market that eventually will, and we're in a good enough economy that's kind of surprisingly, almost better than good enough.
and at the end of the day. We look at our private equity priority index, which measures growth versus kind of like profitability or taking out costs or growth versus cost, maybe is one way to think about it. Private equity is still very much in the growth phase, which signals that they are still very much positive about the future.
Um, so that is the, the, the high level update. I think the other things that we're seeing, private equity, equity is still investing tons in people. We're still getting lots and lots of needs for, you know, specialized, excellent recruiters, interim executives. Technology, as we talked about is booming.
Strategy is still in very important. So we're getting really demand across every functional area in the companies [00:19:00] to me. as a professional skeptic that dares me to be optimistic in a time where it's been really hard to, or certainly fatiguing to because we keep on getting into the stop and go traffic.
My sense is little by little the roads are opening up and we're picking up speed. Even if it's not very perceptible at the time, as you still to be, you still seem to be bunched up in, you know, kind of the traffic of the day, but as I dare to look around the corner, it seems like it's opening up now. All of that is of course.
sean-mooney_1_08-05-2025_100536: Yeah, proviso by the fact that if another black swan comes in, you know, all bets are off, right? But at the end of the day, I think things are getting better. The conditions are here. My bet if I were a betting person would be that we're entering into the next growth cycle and I think Morgan Stanley recently agreed with us.
So hope this is something that gives you some actionable information. If you'd like to request a copy of the report, please reach out to your BluWave account executive [00:20:00] or visit a link that we've placed into the notes of this episode, and we'll do everything we can to support not only the safety of your businesses, but also the success.
Let's go get it and onward.

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.