The Negotiated Exit: How Liquidity Friction Is Re-Engineering Private Equity Deal Behavior
Liquidity has not vanished - it has migrated into continuation vehicles, NAV loans, partial realizations, and carve-outs. A reading of the 2025 transaction record for what private equity is actually doing.
James Brocklebank is Managing Partner and co-chair of Advent International, where he has led the firm's European investing for more than two decades and helped build its carve-out and technology franchises across deals including Thyssenkrupp Elevator, Zentiva, and INNIO.
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Private equity exits are no longer binary events - a sale or an IPO - but negotiated structures assembled to manufacture liquidity that the market will not supply on its own. The headline numbers look like recovery: global buyout-backed exit value jumped 47% in 2025 to $717 billion, the second-best year on record, according to Bain & Company's 2026 Global Private Equity Report. But the recovery is narrow and structurally distorted. Just seven exits above $10 billion supplied 22% ($155 billion) of the total, exit count fell 2% to 1,570, and distributions to LPs as a share of NAV remained at 14% - below 15% for a fourth consecutive year, a level not seen since 2008-09. Underneath sit roughly 32,000 unsold companies worth $3.8 trillion, with about 52% of buyout inventory held longer than four years. What practitioners are actually doing in response - re-trading assets to themselves via continuation vehicles, taking partial realizations, drawing NAV loans, running dual-track carve-out processes - is the real story. Liquidity is not gone; it has migrated into specific pockets of complexity and is being financially engineered. This article reads the transaction record first, then derives what it means.
In This Report
Top Executive Implications for PE & Deal Leaders
Four concrete shifts in how firms should underwrite and operate, derived from the 2025 transaction record rather than macro narrative.
1. Underwrite multiple exit routes at entry
The clean, linear exit plan is dead. Leading sponsors now plan for trade sale, sponsor sale, IPO and continuation vehicle in parallel rather than a single base case.
At investment-committee stage, document credible alternative exit paths - building scale through add-ons, repositioning for IPO, or extending the hold with renewed value creation - and price each against current buyer-type clearing levels (strategics at a 10-25% premium, sponsors at ~2.5x MOIC, secondaries near NAV).
2. Build carve-out capability as core operating muscle
Carve-outs reached a five-year high as a share of US buyouts in 2025 and were the defining deal type of the year. The ability to separate a business from a parent, manage transition service agreements, and eliminate stranded costs is now a sourcing edge.
Treat separation capability as a real, staffed competency - not a narrative - and discount for the fact that post-2012 carve-outs have averaged ~1.5x MOIC versus the pre-2012 ~3.0x.
3. Treat longer holds as the base case
Median holds have drifted toward 6.5-7 years and IRR stagnates after year seven. Value creation must now come from operations, not multiple expansion.
Underwrite to Bain's "12 is the new 5" reality - roughly 12% annual EBITDA growth where 5% once sufficed - and build value-creation plans where revenue and margin growth, not leverage and re-rating, drive the bulk of returns.
4. Structure optionality, not linear exit plans
The winning firms treat liquidity as an engineering discipline. NAV facilities, continuation vehicles, and partial realizations are deployed deliberately rather than reached for as last resorts.
Stand up the governance and relationships for these structures before they are needed, and watch the binding constraint - distributions-to-NAV at 14% - as the signal for when the negotiated exit stops being a phase and becomes the operating model.
Market Reality: What Is Actually Trading
Start with what cleared. In 2025, the assets that traded were large, high-quality, and sold mostly to corporates. Sponsor-to-strategic exit value rose 66% year over year (73% in North America, 82% in Europe), led by deals like ECP's $29.4 billion sale of Calpine to Constellation and GTCR's $17.6 billion sale of Worldpay to Global Payments. The IPO window reopened but selectively: Venture Global (a roughly $58-60 billion debut in January 2025), SailPoint (relisted by Thoma Bravo at a ~$12.8 billion valuation in February), and Medline (which raised $6.26 billion in December 2025 at a ~$38 billion valuation, backed by Blackstone, Carlyle and Hellman & Friedman). PitchBook noted all three of North America's largest IPOs happened in Q1; North American PE-backed IPO value roughly doubled to over $100 billion, while European exit value sat at roughly half the prior year's level.
What did not trade: the mid-market and the aged tail. McKinsey's 2026 Global Private Markets Report counts more than 16,000 companies held longer than four years - 52% of buyout-backed inventory, the highest on record and ten points above the five-year average. PitchBook put US PE inventory near 12,000 companies by end-2024, roughly an eight-year supply at the prevailing pace of ~1,500 exits per year. Holding periods tell the same story: median hold at exit has drifted toward 6.5-7 years, and S&P Global recorded the longest average buyout holds on record in 2025.
The distribution math is the binding constraint. Bain's distributions-to-NAV figure of 14% (an 11% reading on its 2024 measure) compares with roughly 29% in 2014-2017; Bain, citing MSCI data through Q3 2025, calls it "a level not seen since 2008-09 in the middle of the global financial crisis," with distributions "lagging historical averages for four straight years, a new record for the modern private equity industry." For 2018-vintage US and Western European funds, Bain finds DPI sits a little above 0.6x versus a historical benchmark of about 0.8x. This is the LP cash-flow mismatch driving everything downstream: NAV grows on paper, cash does not come back.
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Transaction-Level Evidence of Exit Friction
Sit in the processes and the friction is visible. The clean exit has been replaced by the negotiated structure. The clearest example is Vista Equity Partners' Cloud Software Group (Citrix + Tibco): rather than sell or IPO the asset formed in its 2022 $16.5 billion buyout, Vista moved it into a $5.6 billion single-asset continuation fund in June 2025 - $2.7 billion of fresh secondary capital plus $2.2 billion from Vista's own Funds VII and VIII, with the asset transferring at a 5% discount to its Q1 2024 mark and original Fund V LPs offered a 4.1x multiple to cash out. New Mountain Capital followed with a ~$3 billion multi-asset CV for healthcare-marketing firm Real Chemistry. Apollo and Neuberger Berman led a $780 million CV that let Abry Partners keep control of Centauri Health Solutions while cashing out earlier investors, with about $150 million earmarked for growth.
These are not distress sales; they are re-trades of trophy assets to the same sponsor. The pricing gap between buyer types explains why. Strategics can pay for synergies and typically command a 10-25% premium; sponsor-to-sponsor buyers underwrite to roughly 2.5x MOIC and 20%+ IRR and clear lower; secondary buyers price near NAV (buyout secondaries traded at ~94% of NAV in H1 2025, per Jefferies). When the strategic bid is absent and the sponsor bid is too low, the GP manufactures the third option.
The result is a proliferation of partial realizations. Bain found partial realizations were 65% of total realizations for the 2019 vintage versus 37% for 2014, and that about 30% of companies in buyout portfolios have already undergone some liquidity event - minority stakes, dividend recaps, NAV loans - generating an estimated $410 billion of liquidity without a full sale. What used to be a "clean exit" is now a negotiated structure assembled deal by deal.
Liquidity Mechanics: How the System Is Adapting
The plumbing has been rebuilt. Per Jefferies' 2025 Global Secondary Market Review, "the global secondary market reached $240 billion in transaction volume in 2025, a 48 percent year-over-year increase that surpassed expectations and marked the largest year on record" - up from $162 billion in 2024 (itself up 45%). GP-led volume reached $115 billion in 2025, "a 53 percent increase year over year and accounting for 48 percent of total secondary market activity," with continuation vehicles representing 89% of GP-led activity. Jefferies adds that "the average CV size rose in 2025 to approximately $900 million, and the number of GP-led transactions exceeding $1 billion increased to 29," up from 21 in 2024. Dedicated secondary dry powder reached a record $327 billion. Roughly 83% of the top 100 buyout sponsors have now completed at least one CV. This is no longer an edge-case tool: PitchBook shows continuation funds rose from 2.7% of global PE exit value in 2020 to 8.1% in 2025.
Running alongside is NAV financing - borrowing against the whole portfolio to fund distributions or add-ons without selling. The market is roughly $100 billion today; 17Capital "estimates $70 billion in NAV finance deployment in 2025, with the market potentially reaching $145 billion out of a total addressable market of $700 billion by 2030." Rede Partners reported "the average deal size per lender jumping by 142% to over EUR800 million in 2024 from EUR330 million in 2023." CVs and NAV loans are increasingly used together: a CV recapitalizes a trophy asset and resets the hold; a fund-level NAV loan bridges distribution timing.
The shared logic is the "hold longer vs. exit lower" tradeoff. With IRR known to stagnate after year seven - Bain's analysis of 2000-2015 vintages - GPs increasingly choose to re-engineer liquidity rather than crystallize a weak mark. Liquidity has stopped being a timing question and become a structural design problem. The mechanisms carry governance cost: only about 11% of 2025 CV deals were set against a competing, arm's-length bid (William Blair), and the SEC has opened a probe into CV conflicts, asset valuations and disclosure.
Why Exits Are Harder: Root Causes From Observed Behavior
Four observable constraints, not macro narrative.
The valuation gap. Public multiples re-rated faster than private marks; the public-to-private EV/EBITDA spread widened to near-record levels in 2024, with BlackRock data placing S&P 500 EV/EBITDA at 16.5x against private equity at 12.7x - a 3.8x gap, the widest since 2021. McKinsey reports the median PE purchase multiple actually rose, from 11.3x EBITDA in 2024 to 11.8x in 2025 - assets stayed expensive even as exit demand softened, widening the bid-ask spread that has dogged the market since 2022.
Cost of capital. Bain pegs LBO borrowing at 8-9% versus ~6% in 2015, with leverage down to ~36% of enterprise value from ~50%. Less debt and pricier debt suppress what buyers can pay.
Slower earnings normalization. Assets bought at 2020-2021 peak multiples on five-year underwriting are hitting natural exit windows in 2025-2027 without the EBITDA growth to justify entry prices; interest coverage fell to ~2.4x in the US, the lowest since 2008.
Buyer caution. Strategics pulled back in some sectors, and high-profile antitrust failures (Adobe-Figma) made certainty premiums harder to bank, while heightened diligence around AI disruption, tariffs and geopolitics lengthened processes. The share of marketed deals that actually closed was already trending down in the second half of 2024.
Where Deals Are Still Getting Done
Liquidity migrated; it did not vanish.
By sector, software/IT and healthcare remain the most liquid currency - Bain and McKinsey both note technology assets "found their way to the finish line" via strategic and sponsor demand, and PE medical-supply exits jumped to $3.09 billion across 12 deals in the first ten months of 2025 versus $0.75 billion across 14 in all of 2024.
By deal type, carve-outs are the standout. They reached a five-year high as a share of US buyouts (above 10.6% in H1 2025); PE asset and business-unit acquisitions hit $24 billion across 145 deals in H1 2025, up from $19 billion across 127 a year earlier. Named 2025 carve-outs: Thoma Bravo's $10.55 billion purchase of Boeing's Digital Aviation Solutions (Jeppesen/ForeFlight); EQT's $4.25 billion acquisition of Crown Castle's small-cells business; CD&R's ~EUR16 billion-enterprise-value Opella consumer-health carve-out from Sanofi; Advent's up-to-$4.8 billion acquisition of Reckitt's "Essential Home" portfolio (Air Wick, Calgon, Cillit Bang); and Carlyle/QIA's EUR7.7 billion BASF Coatings deal - described by PwC as the largest buyout with PE involvement in Europe in 2025.
By geography, the divergence is sharp. North America produced the liquidity - roughly 97% of prior-year exit value recovered, IPO value doubling - while European exit value sat near half the prior year's level (though European trade sales reached ~60% of exits, a ten-year high). Asia bifurcated: per the Financial Times, major sponsors (KKR, Blackstone, CVC, Warburg Pincus, Carlyle) completed no publicly disclosed full exits from mainland Chinese buyouts in 2025, with China fund stakes trading at 40-50% discounts, while Japan and India absorbed the redirected capital.
By buyer type, secondary funds and specialists stepped in where strategics and IPOs could not: Golub Capital launched a GP-led secondaries strategy with a >$1 billion commitment; Lexington, Ardian, Blackstone Strategic Partners and Goldman Sachs Vintage each raised $20 billion-plus secondaries funds, making Belron-scale single-asset CVs financeable in the first place. Liquidity is migrating into specific pockets of complexity.
Complexity as a Deal Engine
Now the interpretation. The same forces choking clean exits are generating the deals that do clear, and they share a root: complexity. Corporate portfolio simplification - conglomerates shedding non-core units under activist and cost-of-capital pressure - is manufacturing forced divestments. Carve-outs accounted for roughly 24% of worldwide M&A in 2024; M&A objectives appeared in 35% of global activist campaigns in 2025, and 50% in Europe. GE's breakup, Honeywell's three-way split, 3M's Solventum spin, Sanofi's Opella, Reckitt's Essential Home, Boeing's Jeppesen, and KKR's up-to-EUR22 billion Telecom Italia NetCo carve-out - each is a complex separation that deters less-sophisticated buyers and rewards operators able to stand up a business from a parent.
Geopolitical fragmentation (China decoupling, China+1 supply-chain shifts toward Vietnam and Indonesia), regulatory divergence across the US/EU/Asia patchwork, and sector-specific operational complexity in industrials, healthcare, fintech and defense all do the same thing: they increase mispricing, create motivated sellers, and expand the buyer universe to those who can underwrite the difficulty. Advent's record is the archetype - its defense thesis (more than $15 billion of enterprise value across the sector since 2020, including the March 2026 ~$2 billion Shield AI round it co-led, and a stated commitment to invest up to $1 billion more in next-generation defense technology) and its European carve-out franchise (Thyssenkrupp Elevator, Zentiva, INNIO) are bets on complexity as a source of proprietary deal flow. Notably, the firm is now harvesting those carve-outs into the recovering market - Advent agreed to sell Zentiva to GTCR at a reported EUR4.1 billion in September 2025, having carved it out of Sanofi for EUR1.9 billion in 2018.
The Brocklebank Lens
This is the point at which observed behavior earns a frame. James Brocklebank, Managing Partner and co-chair of Advent International, put it directly on the Goldman Sachs Exchanges: Great Investors podcast:
"This is just one more challenging time in a line of challenging times. But complexity is our friend. And we lean in, in times like this. And the best deals tend to be made in non-benign conditions, if you like."
Read as a slogan, it is bravado. Read against the transaction record above, it is an accurate description of where liquidity actually pools. When clean exits disappear, value accrues to participants able to operate inside negotiated structures - carve-outs with stranded-cost problems, continuation vehicles with conflict-management stacks, cross-border assets with regulatory friction. Brocklebank's own examples in the same interview are carve-outs from conglomerates - "Thyssenkrupp Elevator coming out of Thyssenkrupp, or Zentiva, coming out of Sanofi... INNIO, which is the gas engines business of GE" - and his characterization of Europe as "a patchwork of 44 nations" that throws up deal flow precisely because of its fragmentation. The lens is interpretive, not predictive: it explains why the deals that clear in non-benign conditions cluster around complexity. It is not a forecast that conditions will improve.
What This Means for PE Strategy
The implications for how firms underwrite and operate are concrete.
Underwrite multiple exit routes at entry. Leading sponsors now plan for trade sale, sponsor sale, IPO and CV in parallel rather than a linear base case; McKinsey explicitly documents top firms developing credible alternative exit paths early (building scale through add-ons, repositioning for IPO, or extending the hold with renewed value creation).
Build carve-out capability as core muscle. With carve-outs the most reliable source of new platforms and a defining 2025 deal type, the ability to separate a business from a parent, manage transition service agreements and eliminate stranded costs is now a sourcing edge. But returns have compressed - post-2012 carve-outs average roughly 1.5x MOIC versus the pre-2012 ~3.0x - so the capability has to be real, not narrative.
Treat longer holds as the base case. With median holds near seven years and IRR stagnating after year seven, value creation must come from operations. Bain's "12 is the new 5" framing means deals now demand roughly 12% annual EBITDA growth where 5% once sufficed; top-quartile funds now derive about 40% of returns from revenue and margin growth versus roughly 60% historically from multiple expansion and leverage.
Structure optionality, not linear exit plans. The winning firms treat liquidity as an engineering discipline - NAV facilities, CVs, partial realizations - deployed deliberately rather than reached for as last resorts.
Forward View
Derived from the evidence, not speculation. Exit markets will likely remain structurally more fragmented - a K-shaped split in which elite assets clear at full prices while the long tail stays stuck - rather than reverting to a uniform 2021-style window. Continuation vehicles are becoming a standard item in the exit toolkit rather than a stopgap: with roughly 83% of top sponsors having used one, and analyst projections that CVs could reach 30-40% of all PE exits within a few years, the structure is institutionalizing - even as the SEC probe and the thin ~11% competitive-bid rate signal that governance norms will tighten. Secondary markets will deepen further, supported by record dedicated capital and the entry of evergreen and retail vehicles. And PE's center of gravity is shifting toward "liquidity engineering plus operational alpha" - manufacturing distributions through structure while generating returns through EBITDA growth rather than financial engineering.
The constraint to watch is the binding one: distributions-to-NAV at 14%. Until that metric normalizes toward its ~29% historical level, the negotiated exit is not a phase. It is the operating model.
Methodology
Exit and deal-value figures from Bain, McKinsey, PitchBook, Jefferies, Preqin and S&P Global differ by methodology (announcement vs. completion dates, disclosed-value-only thresholds, partial vs. full exits), so totals are not strictly comparable across sources - directional trends are robust, point estimates less so. Several forward-looking items are flagged as such: NAV-finance and CV-share projections to 2030 are estimates, not outcomes, and INNIO's reported IPO valuation is a target, not a completed transaction. The "Vestacy" name reportedly applied to Advent's Reckitt carve-out could not be confirmed in primary sources, which call the business "Essential Home"; it is rendered accordingly here. The Zentiva EUR4.1 billion 2025 sale price was reported by the FT and corroborated by Reuters but not officially disclosed by Advent or GTCR. The Brocklebank quotation is verbatim from the Goldman Sachs Exchanges: Great Investors episode and was verified against both Goldman Sachs's and Advent's published transcripts. Public-versus-private valuation-gap figures (BlackRock's 3.8x spread) trace through secondary aggregation and should be confirmed against primary BlackRock data before institutional citation.