Introduction

Private equity (PE) continues to play a pivotal and essential role in shaping the American financial landscape, fostering innovation, growth and transformation across various industries. As the PE sector in the US has evolved, so has its legal framework, shaped by regulatory changes, market dynamics, emerging trends and other issues.

The outcome of the 2024 US presidential election, which brought significant shifts in regulatory and economic policy, has already begun to influence the PE landscape to date in 2025 and is expected to continue shaping the sector’s legal and operational environment in the years ahead. California is experiencing these same national M&A and PE trends, but with heightened concentration on artificial intelligence and technology transactions in Northern California and media and entertainment transactions in Southern California. Additionally, the effects of ongoing and emerging geopolitical conflicts – including those in Ukraine, Israel, India and Pakistan, as well as the recent escalation involving the US, Iran and Israel – have introduced new layers of complexity and risk, prompting PE sponsors to adapt their strategies and anticipate further changes as these situations evolve. This chapter of the guide discusses the latest legal trends and developments in US PE, providing an overview for PE sponsors, investors, issuers, sellers and legal practitioners.

Market Dynamics and Deal Activity

Tariffs, trade wars and supply chain disruptions

Tariffs are causing instability, unpredictability and worries about longer trade conflicts and more protectionism. The current administration has imposed substantial tariffs, many of which are being postponed as the US negotiates improved trade terms with various countries, including through reciprocity. PE-backed companies in manufacturing, technology and consumer goods sectors are feeling the impact through higher input costs and shrinking margins, necessitating operational adjustments. As production costs rise, these companies are considering or implementing strategic restructuring, such as reshoring, diversifying supply chains and cost-saving measures to offset these challenges. Despite the wave of tariffs, President Trump has also been cutting deals with countries such as Canada and Mexico, signalling a parallel trend of negotiated adjustments alongside the protectionist measures.

Increased cost of debt financing

In 2024 and to date in 2025, debt financing costs have modestly declined but remain high compared to recent norms due to monetary policy and economic conditions. Higher interest rates and tighter lending standards have increased the expense of leverage for PE sponsors, reducing PE M&A deal volume and causing valuation mismatches with sellers. This impacts PE deal structuring, as PE sponsors must balance the need for leverage with higher capital costs. Elevated debt costs affect investment returns and require PE sponsors to consider alternative financing or seek higher-growth opportunities. Many PE sponsors are focusing on direct lending to companies, including other PE portfolio companies, to capitalise on higher interest rates where traditional banks cannot lend.

Increased competition

The PE market continues to witness a surge in competition, driven by abundant capital and a robust fundraising environment. This competition has led to more aggressive deal-making by PE sponsors that are constantly fundraising, deploying capital and seeking investment exits. PE sponsors must navigate these dynamics, balancing the need for attractive returns with the risks of overpaying for assets. The influx of new market entrants, including family offices and sovereign wealth funds, has intensified the competitive landscape. While potential lower interest rates, narrow credit spreads, greater leverage capacity and a business-friendly current administration signal a potential increase in M&A activity, PE sponsors will continuously need to differentiate themselves to attract investors and obtain outsized returns.

Many PE sponsors are increasingly focusing on value creation strategies post-acquisition, such as operational improvements and strategic add-ons, to enhance the performance of their portfolio companies. Other PE sponsors have shifted to adding value by providing specialised knowledge, quicker deal execution and active operational support. These advantages, however, demand investments in talent and infrastructure that not all PE sponsors can easily manage. PE sponsors are also focusing on late-stage growth equity and structured preferred investments as an asset class to broaden their investment scope and seek attractive valuations and returns.

Secondary market growth

The secondary market for PE interests continues to grow substantially. This trend is driven by the need for liquidity, portfolio reallocation and rebalancing. To achieve this, investors work with firms specialising in secondary market PE transactions. Additionally, there is a growing trend towards the use of continuation funds, which allows PE sponsors to extend their investment horizons and provide liquidity to existing investors. The legal landscape for secondary transactions is evolving, with a focus on disclosure, valuation and transfer restrictions. PE sponsors must navigate these complexities to ensure smooth, compliant transactions. Secondary market transactions offer flexibility for limited partners (LPs) seeking to exit investments before the end of the fund’s life cycle amid slower distributions and portfolio allocation adjustments. These transactions require careful management of investor relations and adherence to fund agreements and regulations.

Continuation vehicles

In parallel, continuation vehicles (CVs), often structured within the secondaries market, have gained momentum as an increasingly important tool for PE sponsors. Lack of traditional exit opportunities, even for high-performing portfolio companies, has led PE sponsors to turn to CVs to extend hold periods and crystallise returns for existing investors. The use of CVs is expected to continue expanding as the M&A market remains uneven and distributions slow.

Special Purpose Acquisition Companies (SPACs)

Following the 2020–21 popularity, SPACs underwent a decline as a force in the PE market. These blank-check companies provide an alternative route to public markets, offering flexibility and speed. The SEC increased scrutiny of SPACs, focusing on disclosure practices, conflicts of interest and due diligence, which decreased the volume of SPACs as well as PE sponsors’ interest in SPAC transactions as a portfolio company exit strategy. As of 2025, SPACs attract renewed attention, driven by specialised PE sponsors. While their popularity has not reached the heights during the 2020–21 SPAC boom, 2025 has seen a significant increase in SPAC IPO filings on US stock exchanges compared to 2023–24. The resurgence is due to more discipline than during the 2020–21 SPAC boom, with smaller, more conservatively valued deals and PE sponsors prioritising profitability over growth.

Inflation

Over the past three years, PE sponsors have faced significant challenges as persistent inflation led to higher interest rates for a longer period. The surge in global interest rates, especially in the US, ended a long period of cheap borrowing, making it harder for PE sponsors to finance deals. Inflation further increased costs and created uncertainty about company earnings, particularly for those acquired at high prices after the COVID-19 pandemic. This environment has made it difficult for investors to assess value and execute deals, as lenders have become more cautious and deal making slowed. PE sponsors continue to seek clarity as they navigate ongoing uncertainty around inflation and interest rates, which continue to send mixed signals.

Volatility

Volatility remains a defining feature of the current PE environment. While tariffs, inflation, interest rate policy and geopolitical events each contribute to market uncertainty, it is the cumulative volatility arising from these factors that presents a major barrier to PE sponsors in deal execution. PE sponsors and corporate sellers alike report greater hesitancy in launching or pursuing transactions due to concerns about valuation stability, regulatory predictability and buyer confidence. This ambient volatility disrupts not only pricing but also timing and execution, creating a drag on otherwise actionable deals for PE sponsors.

Shifts in fundraising environment

The PE fundraising market has seen its most muted first half since the COVID-19 pandemic, with USD387 billion raised in H1 2025, representing a decline of more than 17% compared with the same period a year earlier and leaving the industry on track for one of its weakest annual totals in recent years. This highlights the challenges general partners face in attracting investments. The decline was not uniform. Larger PE funds continued to attract most capital, while mid-sized PE funds struggled to secure commitments. LPs preferred established managers with diversified strategies and strong performance.

Regulatory Environment

Securities and Exchange Commission (SEC) oversight and enforcement

The SEC has maintained its scrutiny of PE sponsors, but rollbacks to SEC regulations are expected under the current administration. The previous administration heightened SEC oversight and regulations to enhance transparency, fairness and investor protection. Recent SEC enforcement actions against PE sponsors have focused on fee disclosures, conflicts of interest and valuation practices. For example, last year the SEC settled charges against a PE sponsor for making misleading communications about fund performance. In the same matter, the SEC also charged the same PE sponsor for failing to maintain and enforce adequate policies to prevent misuse of material non-public information. The SEC’s Division of Examinations had prioritised examinations of PE sponsors, particularly regarding compliance with the Investment Advisers Act, but the current administration has indicated intention to scale back SEC regulations, including cryptocurrency. PE sponsors must navigate this evolving SEC regulatory landscape to ensure compliance, and maximise reputation and investor returns.

Antitrust scrutiny

The regulatory environment for PE is being shaped by antitrust scrutiny. The current administration’s antitrust agencies are not expected to be as aggressive as the previous administration in scrutinising PE sponsors and blocking business combinations, but President Trump has indicated he intends to target large technology companies. The current administration is also continuing the prior administration’s pending lawsuit in the US District Court for the Southern District of New York against KKR & Co Inc (KKR), alleging KKR violated initial disclosure requirements in antitrust filings under the HSR Act, with the DOJ seeking over USD650 million in civil penalties. Antitrust scrutiny will continue to be relevant for PE sponsors using roll-up strategies to consolidate smaller companies. Federal, state and foreign antitrust agencies are increasingly concerned that roll-ups may create monopolies or harm consumers.

There is also a trend for states to implement their own merger filing requirements (eg, New York, Colorado, Washington, etc). PE sponsors need to thoroughly evaluate antitrust risks during due diligence and deal documentation, and should expect longer review times and potential divestitures or other remedies when buying or selling portfolio companies. The DOJ’s recent challenge to Hewlett Packard Enterprise’s (HPE) USD14 billion acquisition of Juniper Networks – resolved only after HPE agreed to divest assets and license core software – highlights the continued regulatory focus on consolidation in the technology sector. The DOJ’s action against KKR and HPE suggests PE sponsors should take their HSR Act reporting requirements seriously, especially under the enhanced HSR rules implemented earlier this year. PE sponsors pursuing transactions in concentrated industries should be particularly mindful of antitrust risk and ensure compliance with filing requirements to avoid future regulatory scrutiny.

Anti-Money Laundering (AML) and Know Your Customer (KYC) Requirements

PE sponsors are increasingly subject to stringent AML and KYC regulations. The Anti-Money Laundering Act of 2020 expanded the US regulatory framework, requiring PE sponsors to implement robust compliance programmes, including comprehensive customer due diligence and ongoing monitoring for illicit activity detection and prevention. The Corporate Transparency Act (CTA) of 2024 requires certain entities to file beneficial ownership reports with FinCEN, a bureau of the US Department of Treasury. After the 2025 US District Court decision in National Small Business United v Yellen, enforcement of the CTA’s reporting requirements was suspended for domestic entities, while requirements continue for foreign entities and domestic entities not covered by the injunction. This has created a patchwork of compliance obligations and ongoing uncertainty about the CTA’s future scope and enforceability. The focus on AML and KYC compliance is part of a broader regulatory effort to combat financial crimes and ensure PE investments do not facilitate money laundering or terrorism financing. Compliance programmes must be continuously updated to reflect evolving threats and regulatory expectations, with regular training to ensure employees are aware of their legal obligations.

Committee on Foreign Investment in the US (CFIUS)

CFIUS plays a critical role in the regulatory landscape for PE, particularly concerning national security. The current administration’s America First Investment Policy, and recent amendments to the CFIUS regulations, have expanded transactions subject to review, including certain non-controlling investments in critical technology, infrastructure and data companies. PE sponsors involved in cross-border transactions must be aware of these regulations and foreign direct investment regulations in other jurisdictions and conduct thorough national security assessments during due diligence and transaction documentation. CFIUS has broad authority to request detailed information from firms, including confidential details about LPs. If a PE sponsor includes investors from foreign adversary countries or those raising national security concerns, CFIUS can uncover this information.

Compliance with CFIUS and foreign direct investment requirements is complex, necessitating experienced legal counsel to navigate the process with the White House and applicable federal and foreign agencies in PE acquisitions and dispositions. If CFIUS determines that a foreign investor poses a national security risk in a specific deal, it can mitigate or block the investment, even if the foreign investor only gains an indirect interest in a US business. There is a “wait and see” approach by many PE sponsors and businesses seeking cross-border transactions as the current administration seeks to redefine relationships with various countries, contributing to delays in CFIUS approvals for pending deals. Many transactions are experiencing extended CFIUS review periods as parties await greater clarity on US foreign policy and national security priorities.

Non-competition restrictions and legal challenges

In early 2024, the FTC adopted a rule prohibiting most post-employment non-competition agreements in the US. While this rule is subject to many lawsuits with respect to its constitutional and statutory authority, it includes an exemption with respect to non-competition agreements entered in connection with the sale of a business. In the first half of 2025, the FTC asked courts to stay its appeals related to challenges against the non-compete rules for 120 days at the direction of the new presidential administration. The FTC Chair had also publicly suggested the agency might reconsider whether to continue to defend the rule. PE sponsors are coordinating with legal advisers to keep up with legal challenges and structure non-competition and similar agreements to comply with such rule and related exemption. At the same time, states continue to take varied approaches to restrictive covenant enforcement, and further limitations (particularly on non-competition and related covenants) are expected at the state level.

Changes in Delaware law

In early 2024, the Delaware Court of Chancery held provisions of a stockholder agreement that included a stockholder pre-approval requirement for certain company board actions and imposed other obligations and restrictions on the board were invalid and unenforceable. In response, the Delaware legislature passed (and the Delaware governor signed into law) an amendment to the Delaware corporate law overturning the ruling and permitting stockholder agreements if the agreement does not violate the company’s charter and would not violate Delaware law if included in the charter.

In 2025, Delaware enacted reforms to its General Corporation Law, simplifying the rules for transactions involving directors, officers and controlling stockholders, while restricting shareholders’ access to corporate records. These changes extend “safe harbor” protections to transactions with controlling stockholders and clarify definitions for “disinterested” parties and “controlling stockholder”. The reforms narrow the scope of documents shareholders can access, raise the standard for requesting records, and allow corporations to limit records’ use.

In light of these developments, many corporations are reassessing their domicile, with some exploring redomestication to Texas and, more recently, Nevada. These jurisdictions are perceived by some PE sponsors as offering more favourable regulatory environments, particularly in the context of litigation risk and shareholder rights. Texas has seen a steady increase in corporate migration over the past several years, while Nevada’s recent push to attract businesses has sparked interest due to its flexible corporate statutes and perceived business-friendly courts. Although Delaware remains the dominant corporate jurisdiction, these shifts reflect a broader re-evaluation by PE sponsors of governance frameworks amid evolving legal and political dynamics.

Legal Trends

M&A deal terms

In the current market, M&A deal terms are evolving amid increased competition and regulatory scrutiny. Some PE sponsors are “jumping” auctions by submitting early bids with short confirmatory due diligence, while larger PE sponsors are demonstrating speed by reaching signing within days. Larger PE sponsors, who can offer “full-equity backstop” commitment letters that allow targets to compel payment of the entire purchase price once closing conditions are met, have an edge in auctions over smaller PE sponsors, who cannot offer such terms due to fund concentration limits. In private M&A transactions, there has been a steady increase in earn-outs, where a portion of the purchase price is contingent on the future performance of the acquired business, to help bridge valuation gaps between buyers and sellers and align interests. Representations and warranties insurance (RWI) is increasingly used to mitigate risks associated with breaches of representations and warranties. RWI policies cover potential liabilities, facilitating smoother negotiations and reducing the need for extensive indemnity provisions. PE sponsors must carefully consider these evolving deal terms to navigate the complexities of M&A transactions effectively.

Alternate deal structures

In 2025, PE sponsors are adopting innovative deal structures to navigate market complexities and enhance returns. Frequent strategies include earn-outs and contingent payments, linking part of the purchase price to future performance, and minority investments with negotiated control rights, allowing influence without majority ownership. Structured equity, combining debt and equity features, offers flexibility and risk mitigation, while joint ventures and strategic partnerships provide additional capital and expertise. Co-investment opportunities for LPs have also become more popular, allowing LPs to invest alongside the main fund, often with reduced fees and improved terms. PE sponsors increasingly use these arrangements to secure appealing investments and boost returns.

Regulatory-driven changes to fund terms

The fee disclosure rule, recently shut down, was a regulatory proposal requiring PE sponsors to provide detailed, standardised disclosures about fees and expenses to investors. It aimed to address concerns about opaque fee structures and conflicts of interest in private funds. The rule was shut down after industry pushback, with arguments it was overly burdensome, costly and could stifle innovation. Its shutdown, like the pause of the CTA, reflects a regulatory environment where new compliance requirements are being reconsidered or rolled back due to industry concerns. For PE sponsors, this reduces immediate compliance and reporting obligations.

Emerging Issues

Digital transformation and cybersecurity

The digital transformation of PE operations is accelerating, with PE sponsors using technology to improve deal sourcing, due diligence and portfolio management. As PE sponsors grow, efficient and scalable solutions become essential, but this shift increases cybersecurity risks. PE sponsors are attractive targets for cyber-attacks due to their sensitive financial data, public investment activities, and often insufficient cybersecurity, making breaches highly damaging to finances and reputation. Legal considerations include data protection, incident response, and compliance with evolving global and US state cybersecurity regulations. PE sponsors must implement and update strong cybersecurity measures to protect information and maintain investor confidence. Increased technology use also requires best practices in data governance and cybersecurity hygiene. Regular cybersecurity assessments, vulnerability testing and employee training help mitigate risks and ensure regulatory compliance. Strong information protection and transparent security practices build trust with partners and stakeholders, making cybersecurity both a safeguard and a growth driver for PE sponsors.

Artificial intelligence (AI)

AI is increasingly integrated into PE operations, offering new opportunities for efficiency and value-creation. AI enhances deal sourcing by analysing data to identify potential investment targets and trends. Additionally, AI-powered analytics improve due diligence by providing deeper insights into a target company’s financial health, operations and market positioning. Moreover, AI helps PE sponsors optimise internal processes to boost transparency by supporting communication, customer relationship management and fund data analytics. AI improves efficiency, boosts profitability, identifies new revenue sources and reduces risk. AI raises legal considerations, including data privacy, algorithmic bias and compliance with evolving regulations. PE sponsors must navigate these challenges to harness AI while ensuring legal compliance.

DEI rollback

Diversity, equity and inclusion (DEI) have become critical for PE sponsors, with rising pressure from investors, regulators and stakeholders to improve DEI practices within sponsors and portfolio companies. In 2025, PE sponsors have begun quietly rolling back DEI commitments due to shifting political climates, including the current administration targeting DEI policies, economic headwinds, and increased scrutiny over the effectiveness, constitutionality and costs of such programmes. Some PE sponsors claim their core principles remain unchanged after scaling back DEI, while others say they will “adapt” as anti-discrimination laws are enforced by the current administration. As PE sponsors recalibrate priorities, the rollback of DEI is set to reshape the industry’s approach to talent management, deal sourcing and value creation, raising questions about the future of inclusive leadership for PE sponsors.

Presidential election and wars

Political and geopolitical developments remain pivotal in shaping the PE landscape. With President Trump in office, PE sponsors are evaluating the impact of anticipated shifts in US policies, regulatory priorities and international relations. The administration’s tax policy, trade agreements and foreign investment regulations are expected to affect deal structuring, cross-border transactions and portfolio company operations. Ongoing wars in Israel and Ukraine continue to inject volatility into global markets, while the recent US–Iran–Israel escalation has further intensified uncertainty in the Middle East, and rising tensions between India and Pakistan have increased concerns about South Asian stability. Although full-scale conflict has not erupted, recent escalations highlight the need for heightened geopolitical risk assessment. These factors require PE sponsors to adopt more robust due diligence, scenario planning and risk mitigation as they navigate a complex and unpredictable environment. PE sponsors are monitoring policy changes and conflicts while reassessing investment in light of these geographic exposures to safeguard value and capitalise on opportunities.

Cross-border transactions

Cross-border PE transactions have grown in recent years but new sanctions, tariffs and regulatory barriers, often enacted with little notice, have made them more challenging. PE sponsors must remain agile in compliance, as failure to adapt can lead to significant financial and reputational risks. Navigating these challenges demands a deep understanding of shifting international regulations, complex tax structures, and the impact of trade restrictions on deal value and execution. Beyond regulatory compliance, PE sponsors must address cultural differences, local market dynamics, and increased legal risks from divergent legal systems. Effective management depends on real-time due diligence, robust risk mitigation, and collaboration with local advisers and legal counsel to ensure success in an unpredictable global landscape. Although some tariffs have been delayed, PE sponsors remain wary of trade war risks and their impact on cross-border deals.

Best Practices for Legal Compliance

Robust compliance programmes

PE sponsors must implement robust compliance programmes, including targeted, role-specific training updated for regulatory changes. PE sponsors should establish clear, written compliance policies and procedures, ensure accessibility, and regularly review for relevance and effectiveness, with ongoing monitoring. A strong compliance culture mitigates risks and enhances efficiency. Compliance programmes should be tailored to the PE sponsor’s specific risks and regulatory environment, incorporating best practices and lessons from prior regulatory actions. Modern frameworks should leverage technology such as AI-driven monitoring and automated reporting to address issues in real time. Regularly updating policies, conducting audits and fostering a compliance culture are essential components of a robust compliance framework.

Scenario planning

In today’s volatile global environment, PE sponsors must prioritise scenario planning and crisis management to navigate political, economic and regulatory shocks. This requires comprehensive risk assessment frameworks to identify vulnerabilities across all portfolio companies and investment strategies. PE sponsors should regularly conduct scenario analyses and stress-test portfolios against adverse events such as regulatory changes, geopolitical conflicts or economic downturns, using real-time data and predictive analytics to anticipate threats. Maintaining strong relationships with external advisers, including legal, regulatory and public relations experts, ensures rapid access to specialised guidance during crises. Transparency and timely communication with investors and stakeholders are critical during periods of uncertainty.

In Conclusion

The US PE landscape is dynamic, shaped by regulatory changes, market forces and new trends. PE sponsors, investors, issuers, sellers and legal practitioners must stay informed and address legal challenges proactively. Robust compliance, engagement with regulators, transparency and regular communication with legal counsel are key to navigating the complex legal environment and achieving sustainable growth. Success also requires strategic agility, innovation and forward-looking risk management. PE sponsors should embrace digital transformation, use technology and data analytics, and adapt to changing geopolitical and economic conditions. Proactive scenario planning, strong investor relations and prioritising value creation across portfolio companies are essential for managing uncertainty and seizing opportunities. Adaptable, informed and responsive PE sponsors will be best positioned for sustainable growth and long-term success. As the PE sector continues to evolve in the US, staying ahead of legal trends and developments will be crucial for success.