“You have to know where you can add value, know your strengths, and play on your strengths", says Sophie Manigart, professor at Vlerick Business School and one of Europe’s foremost authorities on entrepreneurial finance. This advice has become the survival strategy for private equity in 2025.
After three decades researching Europe's private equity evolution, from venture capital's nascent days in the 1990s to today's trillion-dollar industry, Sophie Manigart has witnessed several fundamental shifts that separate the survivors from the casualties. Her latest insights reveal an industry at an inflection point, where only the most strategically focused firms will flourish.
After a decade where "making money was quite easy" between 2010 and 2020, when interest rates fell, stock markets climbed, and PE professionals could rely on financial engineering to deliver returns, that era is definitively over.
Today, higher interest rates make debt-dependent buyouts exponentially more challenging. Valuation multiples have contracted and turned volatile. "Those who are really focusing most on getting a nice return through financial engineering now face huge difficulties", she explains.
The implications extend beyond individual deals to entire business models. Firms that built their reputations on leverage optimisation and multiple arbitrage now confront a market where "you really have to understand what the fundamental value drivers are within the companies and how you can strengthen them."
"You really have to understand what the fundamental value drivers are within the companies and how you can strengthen them."
The current private equity landscape demands what Manigart calls a "much broader skill set", one where "it's not merely a financial game anymore. It's a combination of financials and operational and strategic engineering."
This shift advantages larger players with deeper resources. "We do see that the big players in their teams not only have financially trained staff, but also those operationally and strategically fluent individuals who can add value", Manigart notes. "This gives a disproportionate advantage to the larger investors."
For firms clinging to yesterday's generalist approach, the call is clear: specialise or struggle.
Deal constipation
Market dynamics create additional pressure through what Manigart terms an industry "constipation". "We see that there is congestion in private equity as it becomes more difficult to exit. IPO markets in Europe are virtually non-existent."
This creates a vicious cycle: "If they cannot sell, they cannot reinvest either.”
The response has sparked innovation in secondary markets. "We have seen really extensive growth in secondary solutions over the last five years, including continuation funds where firms sell off portfolio companies from their first fund to a continuation fund of themselves, which might create risks."
Manigart adds that this is definitely a very exciting space to be in, and she expects to see a lot more growth.
But even these solutions favour firms that can demonstrate concrete value creation rather than financial engineering only.
Call in the specialists
Faced with harder markets and constrained exits, the industry's evolution toward specialisation has accelerated dramatically. "We see a very distinct split between early-stage venture capital and buyout-type financing. In the past, teams did everything. Now, as a token of the maturity of the industry, it's becoming more specialised."
This specialisation operates across multiple dimensions, like size brackets. “Doing a small deal is different compared to a medium-sized or a large deal. You have different competitors, different competencies that are needed”, she explains. Most critically, "we also see more specialisation in terms of industry. In the past, everyone did everything, and now we have healthcare investors, fintech investors, cybersecurity investors, et cetera.”
For smaller firms lacking the resources to build comprehensive operational teams, industry specialisation offers a survival path. "Understanding how value is created in a specific industry is the way forward”, she says.
The logic circles back to Manigart's opening wisdom: "You have to know where you can add value, know your strengths, and play on your strengths. It's not because you're small that you don't have strengths."
The challenge isn't finding strengths – it's having the courage to bet everything on them.
From vultures to value partners
This specialisation response coincides with a cultural transformation, particularly evident in Belgium's traditionally family-dominated business landscape. "In the old days, there was a huge reluctance from mature family-led businesses to engage with financial intermediaries", Manigart recalls. "They saw them as hawks and vultures, and preferred to sell out to a competitor when there were succession problems rather than engage with financial investors."
"In the old days, there was a huge reluctance from mature family-led businesses to engage with financial intermediaries."
In the last decade, however, these businesses have become much more open to having financial investors at their deal tables.
This acceptance hasn't emerged from market uncertainty, as some might assume. "This has been ongoing for a longer time, before the market uncertainty", Manigart clarifies. Instead, demographic reality drives change: "We have more and more family companies where the CEOs get near retirement age and need to plan for their succession, then no one in the family wants to or can take over the business.”
As a result, the industry is now seeing financial investors specialised in taking minority stakes in mature companies, while majority transactions increasingly feature families that "retain a minority stake in the company while the financial investors take a majority stake, enabling the selling shareholders to proceed in stages".
This progression – a first exit followed by continued participation in value creation – represents PE's maturation from financial predator to strategic partner. But crucially, this partnership only works when PE firms bring genuine expertise.
The AI disruption advantage
Technology adds another layer to the specialisation imperative. "I think AI is going to dramatically change the inner functioning of private equity investors", Manigart predicts, affecting everything from " understanding where interesting deals might be available, sourcing deals, analysing them, doing due diligence, and transferring AI skills within their portfolio companies."
Here again, scale matters enormously. "The bigger players can invest in AI and have huge private databases that they use to train their own models, so they do not solely rely on publicly available AI models. They have their own trained models where they are at a huge competitive advantage compared to smaller players”, she shares.
"The bigger PE players can invest in AI and can have their own trained models where they are at a huge competitive advantage compared to smaller players.”
Smaller firms face a choice: develop specialised AI capabilities within their niche or risk obsolescence against better-resourced competitors with superior data and technology infrastructure.
Positioning PE for the future
Whether targeting fragmented industries ripe for consolidation, "from dentists to hairdressers to whatever", or focusing on sectors like defence that "could not be on any list five years ago for ESG reasons, and now it's on top of the list for everyone", the key is depth over breadth.
For industry participants, Sophie offers a final piece of advice that reflects the specialisation theme: "Think about succession planning within the private equity partnerships as well. Many partners now also get to an age where retirement is on the table."
Just as PE firms help portfolio companies navigate succession challenges, they must apply the same rigour internally: ensuring their specialised expertise and institutional knowledge transfer effectively to the next generation.
The message is clear: in an era where financial engineering no longer guarantees success, only firms that combine deep industry knowledge with operational excellence will thrive. The easy money decade is over. The specialisation era has begun.
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