As many had hoped, the mergers and acquisitions (M&A) industry experienced a resurgence in the latter half of 2024. In fact, the number of closed deals valued between $1 and $10 billion was 36% higher than in 2023. Many are calling for 2025 to be even better, and dealmakers and company owners alike are hoping valuations continue to rise, especially as inflation and interest rates decrease.
However, this also means greater competition and more parties at the dealmaking table than private equity firms prefer. That’s why it’s important to tap into your creative side and structure deals in new and interesting ways to keep business moving. To help you understand many of the varieties of deal structures available, let's take a deep dive into the different types of PE deals and transactions.
Just like there are many different players in the M&A industry — a topic we'll delve into in a bit — there are also many ways private equity offers deals. While most formats are structured in a private equity fund, the factors that differentiates each type of PE deal include the source of the capital, the payback method and time frame, and the assets being acquired.
Leveraged buyouts, or LBOs, are when the buy-side of a transaction — often a private equity organization — borrows the majority of or all the capital required for a deal. Usually, these funds come in the form of bonds or loans, secured against the intended acquisition's assets and with a debt-to-equity ratio that’s as high as possible. It's also more common for LBOs to occur when taking a public company off the stock market, known as delisting, and making it private again.
Once the transaction concludes, the buy-side begins paying down the debt while managing the company. LBOs — and other types of private equity transactions where the capital to fund the deal is borrowed — were popular before the 2008 financial crisis. However, they have fallen out of favor and are seen more negatively than other transaction types both within the private equity industry and by company owners.
That said, the industry is starting to see more LBOs show up in private equity offers and deals. In fact, 2025 has already seen its first LBO of the year, with the acquisition of Endeavor Group Holdings Inc. by Silver Lake Management.
Although it’s essentially the same type of PE deal as an LBO, when a company's existing management team borrows the capital to purchase the company from its current owners, it’s called a Management Buyout, or MBO. While the team may seek help from a private equity organization or other financial institution, the management team itself owns and leads the company post-transaction.
Even though the deal still uses the acquired company's assets as collateral, MBOs are often looked upon more favorably than LBOs because the buy-side has deep knowledge of the company. Additionally, in contrast to some other types of private equity transactions, the management team remains the same, helping to ensure continuity.
The aforementioned Endeavor Group Holdings deal was, in fact, an MBO. Endeavor's CEO, the CEO of the acquired company, OpenBet, and other executives each took on part of the debt to purchase the company.
While LBOs and MBOs are types of PE deals where dealmakers buy a company in its entirety, growth capital is a type of private equity transaction where the buy-side acquires only a minority stake (under 50%).
Companies often start with seed-stage funding rounds, with each round thereafter following the alphabet: Series A, Series B, etc. The early rounds are often smaller and backed by venture capitalists, and the later rounds are typically larger and backed by private equity.
Also known as growth equity, growth capital is intended for later-stage companies that have proven themselves to be successful, but may need a bit of a push to help them reach their next milestone. As with many other private equity offers, growth capital requires the current ownership to not only give up some equity, but also some control.
Growth capital is a regular occurrence in the M&A industry, and relatively common as a type of private equity transaction. Very large transactions are often celebrated within the industry, as we saw with Databricks' monster $10 billion Series J round with Thrive Capital in 2024, as well as OpenAI's $6.6 billion Series E.
Where growth capital is focused on late-stage companies, venture capitalists (VCs) operate largely within the early-stage or startup territory of M&A. Most of the time, VCs are only part of seed-stage or Series A-C funding rounds, though they do sometimes participate in later-stage deals.
As with growth capital, VCs acquire a minority stake in a company in exchange for capital. However, while the average M&A deal size was closer to $1 billion for the first three quarters of 2024, the average VC deal size over the last year was only $155.1 million.
Of course, venture capitalists don't have to make a deal entirely on their own. They can contribute to much larger deals with other VCs and PE organizations, as we saw with xAI's $6.7 billion Series C in 2024.
Companies are not the only type of asset private equity organizations purchase. The real estate private equity market is both large and active, with multiple revenue streams available. For instance, investors can make a return by collecting rent on their owned properties, "flipping" them for a profit after making renovations, or simply selling them after a period of time once market values have increased.
Blackstone, one of the top private equity firms, primarily operates in real estate. Its acquisition of Hilton Hotels through an LBO for $26 billion in 2007 is one of the most profitable real estate deals ever. Over the course of 11 years, Blackstone raked in close to $14 billion in profits before it sold its last share of the hospitality company in 2018.
Private credit is a way to structure PE deals when valuations are low and owners are not interested in giving up any of their company's equity. Private credit, also known as private debt, has become an increasingly preferred way for private equity organizations to provide capital to companies through a loan.
As a prime example of a private credit deal, Abu Dhabi Investment Authority (ADIA) and KKR were reported to have invested $1.5 billion into the Indian company Reliance Logistics and Warehouse Holdings just last year.
Private credit deals can take a few different forms:
No matter the type of private equity transaction, there is always a buy-side and a sell-side. Companies, private equity firms, venture capitalists, and other organizations that are part of the M&A industry can be on either one.
For example, a firm could be acquiring a company from its founders that was originally backed by a VC. Or, the firm could be selling one of its portfolio companies to another firm or even another company.
Private equity organizations come in all sizes, with a plethora of roles and organizational designs. Within the industry, there are several firms leading the way and serving as inspiration to smaller firms. According to Private Equity International's 2024 ranking, these are the top five global PE firms:
This list, however, is only one way of viewing the industry, as it judges firms based on the amount they raised last year and not total assets under management (AUM). The top five firms by how much of the market they manage is as follows:
Private equity firms use private equity funds to organize their portfolios and purchase their assets. The General Partner (GP) of the fund — usually a PE firm — sources the Limited Partners (LPs) who provide the capital, manages the fund, and decides what to purchase. The LPs often have very little input on how their money is used, but receive the majority of the return on the fund's investment.
The fund is largely governed by a Limited Partnership Agreement (LPA), which sets forth the general guidelines for the fund, as well as the duration, fees, and other financial terms and conditions.
The Limited Partners (LPs) the private equity firm finds to invest in its fund are not just anyone. LPs must be accredited in order to participate, and are usually either institutional investors (e.g., investment banks, retirement funds, mutual funds) or very high-net-worth individuals. These individuals must have more than $1 million in personal non-residential assets, as well as $200,000 or more in earned income in the past two years.
As an example of an organization operating on both sides of a transaction, BlackRock has multiple arms of its business, including private equity and asset management, among many other financial service offerings.
Many small- to mid-market private companies' goal is an "exit" of some kind. This is usually either an initial public offering (IPO), where it offers company shares on a public stock market, or an acquisition, usually by a larger company or private equity firm.
However, while companies aren't always the asset being purchased in a private equity transaction, they are often sitting on the opposite side of the table from the firm, whether they are purchasing from a firm or the one selling the assets.
As the market heats up in 2025, it will be important for dealmakers to innovate to stay competitive. One of the top ways to do this is by offering non-traditional deal structures. For more on this and other ways that private equity firms are thinking outside the box to get more deals done now, check out this guide.
