Private companies continued their positive EBITDA growth, but the pace is slowing and revealing widening cracks in private markets.

Lincoln International, a global investment banking advisory firm, announced today that the Lincoln Private Market Index (LPMI), the only index that tracks changes in the enterprise value of U.S. privately held companies, increased by 2.9% during the third quarter of 2025. This growth was driven by steady EBITDA growth as enterprise value multiples remained relatively flat. In comparison, the S&P 500 enterprise value growth was 8.3% over that time, largely driven by the Magnificent 7 due to continued momentum around AI investment. Excluding the Magnificent 7, S&P 500 enterprise value growth was more modest at 4.4%, likely due to overall positive macro tailwinds including expectations of further rate cuts by the U.S. Federal Reserve, which would similarly benefit private markets.

“Private market enterprise value growth in Q3 may have lagged the S&P 500, but the growth it experienced was largely driven by an increase in earnings,” noted Steve Kaplan, Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, who assists and advises Lincoln on the LPMI. “Conversely, the earnings of the S&P 500 grew by less than the privately held companies, but the S&P 500 index outperformed because of multiple expansion.”

Private Companies’ Performance Improves, but it’s Not All Positive News

Consistent with the first half of 2025, roughly two-thirds of private companies tracked by Lincoln grew revenue and adjusted EBITDA in Q3 2025; however, the magnitude of adjusted EBITDA growth slowed from 6.6% in Q2 to 5.4% in Q3, while adjustments as a percentage of total EBITDA remained relatively stable at approximately 25%.

Despite steady EBITDA growth, deals of all vintages tracked in Lincoln’s proprietary private market database contradicted expectations and have shown an increase in leverage of ~0.5x – 1.0x since deal inception. Combined with slowing EBITDA growth and stable adjustments as a percentage of total EBITDA, these factors could suggest that private companies are not generating enough cash flow to organically reduce leverage and that the previously-formed cracks in private markets are still prevalent, and perhaps even deepening, in today’s market.

“While fundamental performance has been healthy, on average, companies have not been able to deleverage,” noted Ron Kahn, Managing Director and Global Co-Head of Lincoln’s Valuations and Opinions Group. “This dynamic could be a result of a variety of factors, including lower realization of adjustments and limited free cash flow due to elevated rates. While there isn’t a maturity wall approaching, because of increases in their leverage, a subset of companies may not be able to refinance their debt without a sale or the incurrence of additional equity.”

Buyout Valuations for A+ Companies at All-Time Highs, Despite Lower Deal Count

In today’s market, the highest-quality companies are commanding unparalleled competition, resulting in average enterprise valuation multiples exceeding the levels observed at the prior peak of the market in 2021. However, one key difference in today’s market is that the rest of the market (i.e., the non-A+ assets) is not yet benefiting to the same extent, as the rising tide has not yet lifted all boats.

The other key difference in today’s market is that this competition is driving higher multiples, which when combined with a lower-than-expected transaction count, has led to more billion-dollar deals. Billion-dollar deals comprised 37% of acquisitions in 2025, up from 25% in both 2024 and 2021. Therefore, the deals closing successfully are primarily those of the highest quality, which are chased by a large pool of buyers eager to deploy dry powder and command a higher purchase multiple.

As a result, although the number of deals getting done year-to-date is lower compared to prior years, enterprise valuation multiples for new buyouts have increased to 13.0x EBITDA, above peak levels in 2021 of 12.6x EBITDA. Interestingly, in large part due to the increased equity checks being written for these transactions, average buyout leverage of 5.2x approximates the levels seen in 2021 and 2022 despite interest rates being notably higher today.

Direct Lending Market Remained Competitive in Q3 Despite Deepening Cracks

The average fair value of loans tracked by the Lincoln Senior Debt Index (LSDI) increased to 99.1%, the second highest result in the history of the index, on the back of continued market competition as evidenced by another 25 bps of tightening, with unitranche spreads as low as S+4.50% for borrowers with EBITDA between $40 million and $100 million. As a further sign of competition, original issue discounts (OIDs) for new deals ranged from 0.50% to 1.50%, with some deals having no OID at all. Furthermore, lenders are also stretching on leverage to compete amongst themselves and the broadly syndicated loan (BSL) market, with larger borrowers seeing upwards of 0.5x of additional leverage, which goes hand-in-hand with the record buyout multiples.

“Interestingly, direct lending has historically returned around 8% to 10%, so when you consider spreads as low as 4.50%, with declining OIDs and base rates as the Fed continues to consider rate cuts, there is not much room for spreads to go any lower and still provide an adequate return to attract additional investors,” noted Kahn.

There were many positives to note in the direct lending market in Q3, and performance was generally robust; however, it would be an oversimplification to say that all loans are created equal in today’s market. Of the loans valued by Lincoln in Q3, 4.5% were valued below 80%; however, ~10% of loans maturing in the next two years were valued below 80%, indicating there may be trouble to come for some borrowers in the near future.

Furthermore, although the covenant default rate decreased from 3.4% in Q2 to 3.2% in Q3, amendment activity was approximately 5% higher, with covenant holidays nearly doubling quarter-over-quarter. This suggests that lenders and sponsors remain supportive of portfolio companies, but it may also indicate more trouble is brewing than currently realized. As further evidence of percolating stress, the percentage of deals with a PIK interest component remained steady at 11%, as did those with “bad PIK” interest, indicating a continued shadow default rate of 6%. Finally, Q3 saw a further $3 billion+ of pre-takeover principal related to six incremental lender-takeover transactions, bringing the total debt involved in lender takeover transactions to $24 billion for the year. That tally excludes the headline-grabbing bankruptcy filings of First Brands and Tricolor, given that lenders did not take control of the businesses.

“While there does not appear to be a tsunami of distress, there are cracks in private markets that appear to be growing slowly but surely. Since private credit does not have the upside potential return that private equity has, it only takes one or two bad deals to damage a credit fund’s overall return,” said Kahn.

About the Lincoln Private Market Index & Lincoln Senior Debt Index

The LPMI is the only index that tracks changes in the enterprise value of U.S. privately held companies—primarily those owned by private equity (PE) firms. With the LPMI, PE firms and other investors can benchmark private companies’ performance against their peers and the public markets.

This index is differentiated from other indices as it 1) tracks enterprise values of private companies over time, 2) is based on valuations rather than executive surveys and 3) covers a wide sampling of companies across a range of PE firms’ portfolios.

The LPMI seeks to measure the variation in private companies’ enterprise values by analyzing the aggregate change in company earnings as well as the prevailing market multiples for approximately 1,500 private companies, each generating less than $250 million in annual earnings. The index is calculated using anonymized data on an aggregated basis by Lincoln’s Valuations & Opinions Group, which has distinctive insights into the financial performance of thousands of portfolio investments of financial sponsors, business development companies and private debt funds.

The methodology was determined by Lincoln in collaboration with Professors Steven Kaplan and Michael Minnis of the University of Chicago Booth School of Business. While other indices track changes to a company’s revenue or earnings, the LPMI is different in that it tracks the total value of these companies. Significantly, the large number of private companies used to create the LPMI helps ensure that the confidentiality of all company-specific information used in the index is maintained.

Further, in 2020, Lincoln launched the LSDI, which provides insight into the private credit market as a fair value index tracking the total return, price, spread and yield to maturity of private credit securities. The index is developed using much of the same data as the LPMI, and the methodology was determined by Lincoln in collaboration with Professor Pietro Veronesi of the University of Chicago Booth School of Business.

Important Disclosure

The Lincoln Private Market Index is an informational indicator only and does not constitute investment advice or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln Private Market Index. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln Private Market Index, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln Private Market Index has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.

About Lincoln International

We are trusted investment banking advisors to business owners and senior executives of leading private equity firms and their portfolio companies and to public and privately held companies around the world. Our services include mergers and acquisitions advisory, private funds and capital markets advisory, and valuations and fairness opinions. As one tightly integrated team of more than 1,000 professionals in more than 30 offices in more than 15 countries, we offer an unobstructed perspective on the global private capital markets, backed by superb execution and a deep commitment to client success. With extensive industry knowledge and relationships, timely market intelligence and strategic insights, we forge deep, productive client relationships that endure for decades. Connect with us to learn more at www.lincolninternational.com.

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