Less than a week from Donald Trump’s second inauguration and a little over two weeks into 2025, there still isn’t a clear picture of what the deal space will bring this year.
With questions looming over the fate of the Inflation Reduction Act, the likelihood of tariffs and more than a few geopolitical tensions muddying the view, many lawyers in the deal space are wary of describing what awaits them this year.
However, one area that almost all law firms and lawyers agree on, despite those serious variables, is that private equity will continue to help shape the world of Texas M&A.
“Texas is a great place to be right now if you are in the private equity space,” said Matt Stockstill, the Dallas-based co-chair of Winston & Strawn’s private equity practice.
Over the past several years, there has been a swift uptick in private equity firms looking for ways to become more Texas-focused.
In recent years, both new and established private equity funds — as well as non-fund players like independent sponsors and family offices — have been looking to get more involved in the state. Several factors have contributed to this swift uptick, making Texas a target-rich environment.
“The same pro-business environment that brings Fortune 500 companies to Texas brings new private equity funds, independent sponsors and family offices to Texas, said Stockstill. “Texas is also an attractive location for private equity firms seeking high-growth opportunities across various industries, as the market is ripe with potential acquisition targets.”
In addition, several other key factors, including other Texas-specific business benefits, influence private equity firms’ desire to do deals in the state.
“Texas has emerged as one of the most favorable state-level economic environments in the United States, supported by low state taxes, low regulation, ERCOT and its right-to-work laws. This environment has attracted generalist private equity capital to participate in the boom of manufacturing, distribution, industrial development and business services, in addition to the core energy and technology industries of the state,” said Clay Brett, a Houston-based partner at Baker Botts.
Many law firms atop the list of familiar PE firms within the state are some of the most prominent players globally who initially entered Texas because of those enticing attributes.
Lately, however, firms have noticed a handful of PE newcomers to the market and becoming critical players in this segment.
“Most of the key players in the Texas M&A private equity space are heavily invested in the middle market and include TPG Capital, Trive Capital, Gauge Capital, Jones Capital, CIC Capital and Valesco Industries. These firms are active in a number of industries across Texas,” said Brent Beckert, a Dallas-based M&A partner at Haynes Boone.
Chris Williams, corporate practice group leader at FBFK, notes that in addition to the large traditional Texas PE investors, like Vista Equity and Lone Star, a new crop of Texas-based firms is emerging.
“We’re also seeing, particularly in the lower-middle market, an increase in new, smaller private equity firms,” Williams said.
Beckert agrees and predicts the trend will continue in 2025. “We also expect to see a number of new firms enter the marketplace, including spinoffs from larger offices, increasingly active family offices and independent sponsors.”
Several lawyers think a change in administration could be a win for PE investors.
“We anticipate that the administration’s antitrust enforcement will be more predictable and focus on more traditional enforcement actions rather than the pursuit of novel legal theories. This, coupled with our expectation that the administration will not have the same level of skepticism for private equity as the prior administration, makes it less likely that the administration will be aggressive in challenging acquisitions by private equity,” said Christopher May, co-managing partner of Simpson Thacher’s Houston office.
Brett echoes that belief, saying the change could bring significant benefits to interstate pipelines, LNG exports and similar critical infrastructure projects.
Under the Biden administration, he said, projects requiring regulatory approval “lived under a cloud of uncertainty.” Companies had to deal with halted projects, prolonged environmental reviews and various pauses in critical federal processes that hurt those particular industries.
“The new administration is expected to facilitate more expedient project development and therefore support private capital formation to fund project development,” said Brett.
The general expectation among Texas law firms is that the private equity space will continue to move forward in 2025. However, some PE firms are expected to shift their focus to a few less traditional market areas.
Those sectors include aerospace, defense, healthcare, and artificial intelligence, with a heavy emphasis on AI, specifically regarding data centers.
“The data center boom in Texas, as a response to the growth in AI systems, is just taking off and will likely be the cornerstone of private capital formation for the next decade,” said Brett.
With this uptick in interest in data centers, several firms are also looking for additional ways and, more specifically, deals to help get the power needed for these AI-focused infrastructures.
“In addition to private equity’s role investing heavily in the data center boom, sponsors are also looking to both traditional and renewable energy sources as a way to support data centers’ need for power. Several major private equity funds have also been in the market with large-scale data center project financings,” May said.
In 2025, in addition to a greater focus on data centers from PE firms, other trends expected to come to fruition are more out-of-state private equity firms coming to the state and emphasizing making deals with Texas-based businesses, a trend that Williams expects to accelerate in 2025.
Williams mentioned that his firm expects these PE firms to be specifically interested in industrial, manufacturing, residential services and product-based businesses.