Groundhog Day? Private Equity in 2026 and the search for momentum
Over a year ago, the mood entering 2025 was cautiously positive. Interest rates were falling, inflation appeared manageable, and there was a growing sense that deal markets were finally finding their footing after years of disruption. Then came Q2.
Tariffs, geopolitical turbulence and a loss of momentum through the key spring quarter meant that 2025 never quite delivered the breakout year many had anticipated. Year-end volumes held up reasonably well, but the spring window, so critical to annual deal flow, was effectively lost.
As 2026 began, the picture was strikingly similar. External forces have again intervened, this time a combination of geopolitical tension and tech valuation pressures, raising uncomfortable questions about whether the market is caught in a cycle it cannot easily escape.
Pitchbook data points to approximately $2trn of PE capital ready to be deployed and around 30,000 portfolio companies waiting to exit. A recent KPMG report also noted that 59% of deals last year were bolt-ons. With that much latent pressure in the system, what is actually holding things up?
The deals are there and the pipeline is real. Everyone is busy. But getting things over the line remains genuinely difficult and more “deal crafting” is required.
Transactions often involve more structural creativity; minority sales, bolt-ons, continuation deals, vendor reinvestment to bridge valuation gaps etc. Strategics have also returned more meaningfully, sometimes on a level playing field with PE, sometimes with a slight advantage. The traditional vanilla auction, eight to ten funds in competitive tension through to a contract race, still happens, but it is increasingly the exception rather than the rule.
In terms of sectors, financial services and services more broadly remain strong but certain elements of tech, particularly software and SaaS, are experiencing difficulty with the buyer seller valuation gap at present. Whether this is a short-lived correction or something more structural is too early to judge; AI is clearly influencing how investors assess software valuations, and that is generating meaningful caution.
There is also a discernible move back towards businesses with more traditional, defensive characteristics. Assets that are regulatory or compliance driven, or underpinned by a structural and enduring need, are attracting renewed interest. The implicit logic is straightforward: if a business is not particularly exposed to AI disruption, that is increasingly viewed as a positive.
Beyond the favoured sectors, polarisation remains acute. The strongest assets still command competitive processes and near-peak valuations. Everything else faces longer timelines, thinner bidder pools and a greater risk of late-stage attrition.
Perhaps the deeper question facing private equity in 2026 is not whether activity returns, but what kind of market ultimately emerges from this prolonged period of friction. The industry still has the capital, ambition and capability to transact at scale, but the environment increasingly rewards pragmatism over process and partnership over brinkmanship. The firms that navigate this cycle most successfully are unlikely to be those waiting for a perfect macro backdrop or a return to the conditions of 2021. They will be the ones prepared to adapt — creatively structuring deals, engaging openly with management teams and counterparties, and recognising that in a slower, more complex market, momentum is something that has to be actively created rather than simply awaited.