Special situations investor outlook 2025

Economic uncertainties, shifting interest rate policies, and an increasingly competitive deal environment are continuing to drive rapid change in the special situations investment landscape. Our latest special situations investor outlook delves into the trends that shaped 2024 and looks ahead to identify key expectations for the current year. 

Understanding the key trends in the special situations sector

In 2024, deal activity remained steady, showing momentum on prior years. Many investors remained active and completed multiple transactions, with a significant proportion focusing on businesses with annual turnovers ranging between £20m and £50m. Liquidity issues and strategic motives, particularly non-core disposals, were the main drivers behind these transactions.

Looking ahead to 2025, we expect to see increased deal flow, with nearly all investors anticipating higher levels of capital deployment. Elevated borrowing costs alongside the continued impact of last October’s budget are expected to drive carve-out and restructuring-driven transaction activity. Despite these challenges, investor risk appetite will remain largely stable.

Which industries will be most affected?

Investment activity in 2024 was concentrated in industrials and business services, which saw the highest number of completed deals. These industries, alongside consumer markets, will continue to offer strong opportunities as they remain attractive for investors pursuing turnaround strategies. The technology and hospitality sectors are also generating increased turnaround opportunities.

What are the emerging challenges and opportunities for the year ahead?

Portfolio companies faced significant pressures in 2024, with economic volatility, the impact of the budget and ongoing supply chain disruption proving challenging particularly for industrial sectors. Unsustainable debt burdens and low consumer confidence have reduced demand for discretionary items, and budgetary impacts on cost bases have further constrained businesses' ability to reduce costs. Geopolitical uncertainty is another key factor shaping investment decisions and risk assessments.

As businesses navigate these pressures, cost rationalisation will play a crucial role in investment decision-making, with many investors prioritising operational efficiencies and balance sheet restructuring. This trend will likely persist throughout 2025, as businesses look to protect margins and streamline operations in response to ongoing financial constraints.

Outlook for the year ahead

We expect the special situations market to remain dynamic across 2025, with investors actively pursuing stressed and restructuring-driven opportunities. Unsustainable debt burdens and shifting lender appetite will positively contribute to deal flow and offer attractive opportunities to strategic investors who can adapt to changing conditions.

At RSM, our special situations M&A team has significant experience of reviewing options, advising on strategic carve-outs and accelerated business sales. Get in touch today to find out how our experts can help you.