Private Equity Firms Shift to Operational Value Creation Amid Geopolitical Uncertainty
Private equity firms are increasingly focusing on operational improvements to drive value, as geopolitical shocks and longer exit timelines reshape the dealmaking landscape.
Private equity firms are recalibrating their strategies to create value, driven by escalating geopolitical volatility, high entry valuations, and prolonged exit timelines across the European market. Alvarez & Marsal's latest survey reveals that geopolitical volatility has emerged as the primary challenge impacting value creation and investment returns.
In this complex environment, the focus has shifted significantly from top-line expansion to operational enhancements for boosting EBITDA. Analysis of exited PE investments shows that EBITDA margin improvements accounted for 51% of EBITDA growth in 2025, a substantial increase from previous periods where revenue growth was dominant. The contribution of top-line expansion has consequently reduced.
With exits taking longer, firms are increasingly utilizing the secondaries market and continuation funds to ensure liquidity. The adoption of these secondary market transactions has nearly doubled year-on-year, indicating a strategic move away from forced, lower-valuation exits.
Artificial intelligence (AI) is also playing a more prominent role in value creation. A majority of surveyed firms now employ AI in their value creation programs, with applications ranging from data analysis and insight generation to operational efficiency and financial optimization, aiming for measurable performance improvements.