The US South is set to become a business hub
Southern states have been on the rise for years. Frankly, ever-improving economic conditions mean investing in the region is a no-brainer, yet private equity firms are suspiciously absent. That, though, is about to change.
The South has been out in the cold
Of course, it’s no secret that private equity is making its way out of an activity slump. Over the last couple of years, high interest rates have stifled M&A activity, dampening transaction volume. Between 1H of 2023 and 2H of 2024, deal volume shrunk by 36% (PwC). You see, PE firms’ willingness to invest anywhere in the country stalled, including in the South.
The truth is that the sector has historically, and unfairly, given the region the cold shoulder. Given that CNBC’s top five states for business are all from the Southern region (CNBC), the relatively low PE penetration rates (S&P Global) in these states just don’t add up. Investors have been missing a trick, but this year, they’ll want a piece of the action.
Ripe with potential
Firms are primed to invest with a mountain of dry powder at their disposal (WSJ), and amid a lower-rate environment, a private equity boom is in the cards. Southern states will be the big winners.
Businesses in the region have incredibly promising investment prospects, with the current low PE penetration rate opening opportunities for investors to maximize returns in the area. In fact, in the South, they have the chance to change up their traditional models and ensure healthy returns through organic growth alone.
But to secure this growth, they’ll have to shift their approach. The truth is that the economies of the South aren’t built on the trendy industries – it’s sectors like oil and gas, real estate, and residential and commercial services that form its building blocks.
As a result, investment dollars in the region can go further. At Emory Oak Partners, we have seen firsthand how prioritizing these companies’ people and processes, while embedding sophisticated data and tech, can lead to impressive returns. These companies, which thrive in the South but are stereotypically seen as unsophisticated, have vast potential; they just need the right tools.
And, while I do think the South will have its fair share of high-value deals, it’s transaction volume that will mostly see a jump. Deals will be struck far more frequently across the Austins, the Charlottes and the Miamis of the South; they could even begin to rival the most traditional private equity hubs.
Economic fortunes
And why is the South fast becoming the ideal destination for private equity investment? Well ultimately, there is a range of economic factors spurring business activity in the area.
Firstly, the area is contributing more and more to the national GDP (BEA). In fact, in 2023, six of the fastest-growing Southern states – Florida, Texas, Georgia, the Carolinas and Tennessee – were contributing more than the Northeast for the first time ever (Bloomberg).
This is, in part, a result of the sheer pace of corporate migration. The South is fast becoming a real beating business heart of America, with more and more companies, including the likes of Tesla, moving into the region in search of more favorable business environments.
And why wouldn’t they? North Carolina’s top corporate tax rate, for example, is just 2.5% – the lowest in the country (Tax Foundation).
Twofold, with Trump back in the Oval Office and deregulation possibly in the pipeline, Southern states could become even more attractive to corporations looking for sandboxes of innovation.
Of course, this favorable economic environment is, unsurprisingly, also drawing more individuals to the South: 1.8 million more people called it home in 2024 than in the previous year. But, while its population has skyrocketed, the South’s unemployment rate has remained lower than in other regions (FRED).
Put simply, the South’s industry is bustling. Experienced workers are moving into the area, and the never-ending flow of new corporates is only offering homegrown talent greater opportunities, growing the talent pool even further.
There’s no shortage of hungry, intelligent Southerners ready to build on the energy in the region and propel the South’s industry to new heights. After all, it’s home to two of the top six business schools in the country (US News).
The region’s economic fortunes are certainly galvanizing business activity, and – let me tell you – it’s not going to weaken any time soon.
The South’s moment to shine
In a sense, the stars are aligning. Over the last few years, the foundations of a lively business ecosystem have been laid, and the South’s investment prospects are the best they have ever been.
This year, Southern states will see a marked uptick in PE dealmaking activity as well as strong returns. The region’s business landscape has only gone from strength to strength; 2025 is the year private equity firms could very well reap its rewards.
Kade Thomas is the founder and CEO of Emory Oak Partners, a private equity firm specialising in the home and commercial services sector.
