Private equity portfolio companies in 2025 face a reality that would have seemed unusual a decade ago: extended holding periods have become the norm rather than the exception. The median holding period for private equity-backed companies reached 5.8 years according to recent analysis, the longest since tracking began.1 This shift from the historical four to five year investment horizon to current levels creates new demands for exit preparation strategies.
The implications extend throughout the middle market ecosystem. For general partners, longer holds affect fund performance and fundraising ability. For limited partners, delayed liquidity constrains capital deployment into new opportunities. For portfolio company management, extended ownership periods change incentive structures and career planning. And for the service providers supporting these companies — investment banks, lawyers, accountants and consultants — the timeline for exit readiness extends accordingly.
According to EY’s Private Equity Exit Readiness Study 2025, “78% of firms reported holding assets beyond their typical investment horizon of five or more years.”2 Yet optimism persists, with 33% of firms planning to exit within a year and 55% planning exits within one to two years.3 Translating this intent into successful transactions requires disciplined preparation that often begins years before actual exit.
THE DYNAMICS OF EXTENDED HOLDS
Multiple factors contribute to longer holding periods. Interest rate increases from 2022 to 2023 disrupted exit markets by reducing buyer appetite and constraining financing availability. While rates have moderated from peaks, they remain elevated relative to the 2010 to 2020 period when many current portfolio companies were acquired.
Valuation gaps between buyer and seller expectations persist. The previously cited Private Equity Info analysis suggests that “these circa 2019 investments, acquired at peak valuations, are pushing up the median hold period.” Companies bought at 2021 to 2022 multiples may not command equivalent valuations in current markets, creating reluctance to transact at perceived discounts.
However, the extended hold phenomenon predates recent rate volatility. Bain & Company’s 2025 Global Private Equity Report notes that holding period extension has been gradual, driven by factors including larger fund sizes, increased competition for quality assets and the prevalence of secondary transactions that allow GPs to generate liquidity while retaining ownership.4
Portfolio company count has reached unprecedented levels. Cherry Bekaert reports that “U.S. private equity inventory remains at an all-time high, swelling from nearly 3,000 companies in 2018 to a total of 11,808 by Q4 2024.”5 At the current exit pace of approximately 1,500 exits annually, this represents nearly eight years of inventory, underscoring the magnitude of the exit challenge facing sponsors.
STRATEGIC IMPLICATIONS FOR PORTFOLIO COMPANIES
For portfolio companies, extended holding periods create both challenges and opportunities. The pressure to achieve planned exits has intensified. PwC analysis indicates that to achieve a 20% IRR with a 7% interest rate and seven-year holding period, sponsors now need 4.2% annual earnings growth — more than double the 1.7% requirement with a 3% interest rate.6 This mathematics drives increased focus on operational value creation. Companies must sustain performance improvement initiatives over longer periods. Quick wins that delivered early value may be exhausted, requiring identification of additional operational levers. Management teams face the challenge of maintaining momentum while potentially dealing with fatigue from years of intensive value creation efforts.
However, extended holds also provide opportunities. Additional time allows more thorough transformation initiatives that might have been rushed in traditional hold periods. Strategic acquisitions can be integrated fully. Operational improvements can mature and demonstrate sustainability. Commercial strategies can be refined through multiple economic cycles.
THE EXIT READINESS FRAMEWORK
Successful exit execution increasingly depends on systematic preparation. According to EY research, “88% of firms report undertaking targeted exit readiness activities during an asset’s hold period,” with nearly half “starting exit readiness or preparedness assessments 12 to 24 months in advance of sale.”7 This preparation addresses multiple dimensions:
Financial readiness encompasses clean financial statements, robust accounting systems and clear presentation of adjusted EBITDA. EY found that “65% report issues with fully capturing value creation initiatives in the exit EBITDA,” while “41% of respondents report a lack of access to data granularity to support the equity story.”8 These shortcomings can significantly impact valuations, making financial preparation essential.
Operational readiness focuses on demonstrating sustainable business performance. This includes established KPI tracking, documented management processes and demonstrated resilience through economic cycles. Buyers seek businesses with professional management infrastructure rather than operations dependent on owner heroics.
Commercial readiness involves customer diversification, strong market positions and clear growth strategies. Concentration — whether in customers, products or geographies — typically drives valuation discounts. Companies that can demonstrate balanced revenue streams and identifiable growth vectors command premium valuations.
Organizational readiness addresses management team capability and depth. Key person dependencies create risk that buyers will discount. Developing strong management teams with documented succession plans and incentive alignment removes this concern. EY notes that “talent considerations, particularly for the finance function, also play a role in exit success.”9
FINANCIAL STATEMENT AND ACCOUNTING CONSIDERATIONS
Financial presentation quality significantly impacts exit valuations and process efficiency. Companies should maintain audited or reviewed financial statements throughout the hold period, not scramble for these at exit. Buyer due diligence of companies lacking quality financials extends timelines and increases transaction costs.
GAAP compliance and clean accounting policies matter. Companies with aggressive revenue recognition, inadequate reserves or unusual accounting treatments face buyer skepticism. Quality of earnings adjustments that seem reasonable to sellers may appear suspect to buyers without clear documentation and support.
Adjusted EBITDA calculations require particular care. While some adjustments are market standard — removing owner compensation above market rates or adding back non-recurring expenses — others prompt debate. Companies should develop consistent adjusted EBITDA definitions early, document thoroughly and ensure calculations can with stand buyer scrutiny.
Revenue recognition practices warrant attention, particularly for software and services businesses. Changes in accounting standards, technology platforms and business models create complexity. Companies should ensure revenue accounting reflects economic substance and aligns with industry practice.
MANAGEMENT TEAM DEVELOPMENT
Management team quality and stability directly affect exit success. Strategic buyers and financial sponsors alike evaluate leadership capability carefully, as post-acquisition performance depends substantially on management execution.
The CEO role requires particular focus. For founder-led businesses, succession planning may be sensitive but essential. Even if founders intend to continue post-transaction, buyers assess organizational dependence. Developing strong second-tier leadership demonstrates that business success will continue regardless of founder involvement.
The CFO function has become increasingly critical to successful exits. Companies need CFOs with public company or sophisticated private equity experience who can manage buyer due diligence, present financial results
credibly and implement controls that satisfy institutional ownership standards.
Sales and operations leadership depth matters for demonstrating business continuity. Buyers want confidence that customer relationships, operational excellence and strategic initiatives will persist post-transaction. One-deep organizational structures where single individuals hold critical knowledge create risk.
Compensation and equity planning affects exit outcomes. Management teams should have incentives aligned with exit success through equity participation, transaction bonuses or similar mechanisms. However, structures should avoid creating conflicts where management preferences diverge from optimal transaction outcomes.
GROWTH INITIATIVES AND CAPITAL INVESTMENT
Strategic growth initiatives undertaken during hold periods can significantly enhance exit valuations if executed successfully. However, ill-timed or poorly executed growth efforts can complicate exits.
Organic growth through new products, geographies or customer segments demonstrates business vitality and supports premium valuations. However, such initiatives require adequate runway to mature. Starting major growth programs 12 months before planned exit risks showing disruption without demonstrable results.
Add-on acquisitions represent a common value creation strategy. Successful integration of bolt-ons demonstrates platform scalability and creates larger, more valuable businesses. However, acquisitions close to exit timing create due diligence complexity and integration risk. Buyers will scrutinize whether synergies have been realized and whether combined operations function smoothly.
Capital expenditure timing affects presentation. Companies should complete necessary facility, equipment or technology investments with sufficient lead time to demonstrate return on investment. Deferred maintenance or underinvestment creates buyer concerns and often drives purchase price adjustments.
MARKET POSITIONING AND COMPETITIVE DIFFERENTIATION
Exit valuations reflect perceived market position and competitive advantage. Companies should continuously strengthen their market positions rather than waiting for exit processes to begin.
Market leadership in defined segments commands premium valuations. Rather than claiming presence in large total addressable markets, companies should demonstrate leadership in specific niches where they hold defensible positions. Clear articulation of served markets, market share and competitive positioning resonates with buyers.
Competitive differentiation requires clear value propositions. Whether through technology, service levels, cost structure or other factors, companies must articulate why customers choose them over alternatives. Commoditized businesses without clear differentiation struggle to achieve premium valuations.
Customer satisfaction and retention metrics provide tangible evidence of competitive position. High retention rates, strong net promoter scores and demonstrated pricing power indicate healthy customer relationships that will persist post-transaction.
TECHNOLOGY AND SYSTEMS INFRASTRUCTURE
Technology infrastructure has become increasingly important to exit readiness. Buyers evaluate whether IT systems can support company growth and provide the visibility required for professional management.
ERP systems appropriate to company scale are often essential. Smaller companies may operate on QuickBooks or similar platforms successfully, but buyers planning to scale operations typically want more robust systems. Upgrading technology infrastructure well before exit allows debugging and demonstrates stable operations on new platforms.
Data security and cybersecurity practices receive heightened scrutiny. Buyers assess whether companies have appropriate controls protecting customer data, intellectual property and operational information. Documented security policies, regular testing and compliance with relevant standards reduce buyer concerns.
Customer relationship management systems that provide visibility into sales pipelines, customer interactions and revenue forecasting demonstrate professional commercial operations. Buyers want confidence that revenue projections rest on systematic processes rather than management intuition.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
ESG factors increasingly influence exit processes and valuations. While middle market companies face less prescriptive requirements than large public corporations, buyers— particularly institutional investors — evaluate ESG profiles.
Environmental compliance and sustainability practices matter for certain industries. Companies with environmental risks should address compliance proactively, remediate issues and document strong environmental management practices. Conversely, companies with positive sustainability stories should quantify and communicate these attributes.
Social factors including employee relations, diversity initiatives and community engagement reflect on company culture and long-term sustainability. Strong employee engagement scores, low turnover and positive employer brand support valuation narratives.
Governance practices signal management professionalism. Board structures, financial controls, compliance processes and ethical standards indicate organizational maturity that buyers value.
THE ROLE OF ADVISORS IN EXIT PREPARATION
Professional advisors play essential roles in exit readiness. Investment banks, accountants, lawyers and consultants each contribute specialized expertise.
Investment banks provide market perspective on valuation expectations, buyer universe, process timing and positioning strategies. Engaging banking advisors early for readiness assessments identifies gaps requiring attention and allows strategic planning for optimal exit timing.
Accounting firms conduct quality of earnings analysis, identify financial presentation issues and help develop adjusted EBITDA presentations that will withstand buyer scrutiny. Preemptive quality of earnings work allows companies to address issues proactively rather than defensively during buyer diligence.
Legal counsel identifies corporate housekeeping matters — cap table cleanup, subsidiary organization or contract assignments— that can delay closings if not addressed in advance. Employment agreements, customer contracts and intellectual property documentation all require review and remediation where necessary.
Operational consultants help identify value creation opportunities and implement performance improvements. In situations where management teams lack bandwidth or expertise for certain initiatives, consultants supplement capabilities while transferring knowledge to management.
ALTERNATIVE LIQUIDITY MECHANISMS
While outright sale remains the primary exit path, alternative liquidity mechanisms have grown in importance during extended hold periods. These approaches allow partial liquidity while retaining ownership for further value creation.
Dividend recapitalizations involve refinancing company debt to return capital to equity holders. Private Equity Bro reports that “sponsors returned $68 billion through dividend recap transactions in 2023,” with the strategy helping “meet LP expectations early without immediately selling equity.”10 However, recaps require strong cash flows and careful management of leverage covenants.
Continuation funds allow GPs to transfer portfolio companies from older funds to newer vehicles, providing liquidity to existing LPs while maintaining GP ownership. This mechanism works well for companies requiring additional time for value creation but where current fund timelines create pressure for exit.
Secondary sales to other sponsors provide full exits while allowing new ownership to pursue additional value creation. PitchBook data cited by Moonfare indicates that “secondary market activity jumped to $180 billion in volume in 2023, a 15% increase from the year before.”11
Partial sales through minority stake transactions generate liquidity while maintaining control. Growth equity investors may provide capital and expertise while allowing sponsors to retain majority ownership and capture future value creation.
PROCESS PREPARATION AND EXECUTION
When companies enter active exit processes, preparation quality directly impacts outcomes. Companies should assemble comprehensive data rooms with organized documentation addressing anticipated buyer questions.
Management presentations require careful development. These materials must tell compelling growth stories while providing sufficient detail for sophisticated investors to assess opportunities and risks. The balance between promotional narrative and analytical rigor affects buyer confidence.
Vendor due diligence — quality of earnings reports, tax analysis and legal diligence — allows sellers to control information presentation and address issues proactively. While requiring upfront investment, seller diligence typically improves process efficiency and valuation outcomes.
Management availability throughout process es is essential. Companies where leadership cannot allocate adequate time to buyer meetings, diligence responses and negotiations face disadvantaged positions. Planning for process demands on management band width prevents execution issues.
MARKET TIMING CONSIDERATIONS
While companies cannot perfectly time markets, awareness of market conditions affects exit decision-making. Private Equity Info analysis suggests that “as we move further into 2025, we see evidence that holding periods are approaching their peak, with some upside or flattening to the curve,” potentially indicating “a pivot toward renewed exit momentum within the next 12-18 months.”12
However, the same analysis cautions that “a backlog of delayed exits suggests that firms aiming to exit in late 2025 might consider positioning for strategic sale now rather than waiting for what might be an oversupply situation.”13 This implies that companies ready for exit may benefit from earlier action rather than waiting for improved conditions that may coincide with increased supply.
Industry-specific factors affect timing. Sectors experiencing favorable dynamics — growing demand, consolidation activity, strategic buyer interest— may present better exit windows than industries facing headwinds. Companies should monitor M&A activity in their sectors to inform timing decisions.
Interest rate and financing market conditions influence buyer appetite and pricing. While companies cannot control these macroeconomic factors, understanding prevailing conditions helps set realistic expectations and may inform decisions to accelerate or delay processes.
CONCLUSION
Exit planning in 2025’s extended hold environment requires systematic, long-term preparation. The days when sponsors could acquire businesses, implement basic improvements, and exit within three to five years with attractive returns have given way to reality where value creation demands sustained effort over longer periods and exits require careful positioning.
For portfolio companies, this evolution demands professionalization across financial, operational, commercial and organizational dimensions. Companies must operate at institutional quality standards, demonstrate sustainable performance and tell compelling growth stories. Half-measures in any dimension can materially impact valuation outcomes.
For the broader ecosystem — investment banks, lawyers, accountants, lenders and other advisors — extended holds create both challenges and opportunities. The need for sustained engagement over longer periods changes relationship models but also deepens partnerships as service providers contribute to multi-year value creation journeys.
The most successful exits in 2025 will be those where preparation began years earlier, where companies steadily improved capabilities and positioning, and where all stake holders aligned around clear value creation plans. As one analysis noted, companies should “start planning early and stay agile,” recognizing that “a successful private equity exit strategy involves a mix of precision timing, strong narrative-building, data utilization and market trend alignment.”
For sponsors currently holding portfolio companies, the imperative is clear: use extended hold periods productively by systematically enhancing exit readiness. The companies that emerge from this preparation with clean financials, strong management teams, clear market positions and compelling growth trajectories will command premium valuations when market conditions align for successful exits. Those that defer preparation until exit processes begin will struggle to achieve optimal outcomes in an increasingly competitive and sophisticated M&A market.
Lisa H. Rafter is publisher of ABF Journal.
1 “Holding Periods continue to grow, but could peak in 2025.” Private Equity Info. Feb. 19, 2025.
2 Nardi, Konstanze, “What can private equity do now to finish strong?” EY. Jun. 11, 2025.
3 Ibid
4 “Private Equity Outlook 2025: Is a Recovery Starting to Take Shape?” Bain & Company. March 3, 2025.
5 Moss, Scott M. “Renewed Optimism: Private Equity 2024 Year-In-Review and 2025 Industry Outlook.” Cherry Bekaert. Feb. 12, 2025.
6 “Private equity: US Deals 2025 midyear outlook.” PwC. June 18, 2025.
7 Nardi
8 Ibid
9 Ibid
10 “Strategic Sales: The Corporate Buyer’s Premium.” Private Equity Bro.
11 Kupec, Blazej. “The exit outlook for private equity is the brightest it’s been in years.” Nov. 28, 2024.
12 “Holding Periods…”
13 Ibid
