The global private equity recovery has stalled again after a set of market shocks hit dealmaking, fundraising, and exit activity in the first half of 2026, according to new analysis from Bain & Company.
The consultancy’s 2026 Midyear Private Equity Report says the industry entered the year with renewed momentum before being disrupted by an AI-driven fall in software valuations, redemption stress in private credit, and an energy price spike triggered by the Iran conflict.
Bain described the pattern as an 18-month “Groundhog Day” dynamic in which early optimism is repeatedly interrupted by fresh disruption. A year ago, tariff turmoil knocked confidence. This year, the buyout market had begun to recover before the latest shocks widened bid-ask spreads, caused investment committees to pull back, and weakened exit momentum.
Select transactions are still clearing at high prices, but these are concentrated around top-tier assets. The broader market remains cautious, with companies, sponsors, and limited partners facing a harder environment for valuation agreement and liquidity.
Hugh MacArthur, chairman of the global private equity practice at Bain & Company, said: “There’s no question the fog will lift eventually— it always does. The firms best positioning themselves to lead out of the present slump are giving intense attention to what they can control now, not what they can’t.
“Private equity has entered a much more difficult and competitive era. Generating consistent outperformance will require an ever-sharper strategic focus and, crucially, the disciplined value creation system to back it up.”
Bain said there is nothing fundamentally broken in financial markets. Public equities remain strong, the global economy is still expanding, debt markets are open, and there is abundant dry powder available for deals. Conditions needed for a sustained private equity rebound, however, remain unstable.
The report says a wave of new dealmaking could still be unlocked in the second half of 2026, but a durable upturn will require the market to find a more stable equilibrium than short bursts of activity followed by renewed retreat.
The findings reach beyond private equity itself. Many UK companies depend on private capital for ownership transitions, management buyouts, growth funding, bolt-on acquisitions, and exits. When private equity slows, boards may face longer timelines, tougher pricing conversations, and greater scrutiny of operational performance.
The stall also affects founders and investors expecting liquidity. Private equity has been under pressure to return capital to limited partners after a prolonged period of weak exit activity. Longer holding periods can force sponsors to spend more time improving portfolio companies rather than relying on market recovery to create value.
Operational execution is moving back to the centre of the model. Bain said winning investors will need to lean into value creation plans, AI adoption, disciplined bets, talent, and execution. In practice, sponsors are likely to press portfolio companies harder on margin improvement, pricing, digital transformation, cash conversion, working capital, and management capability.
The AI impact is especially significant. Software has historically been one of private equity’s most attractive sectors because of recurring revenues, scalable margins, and strong exit demand. If AI changes customer behaviour, product economics, or competitive moats, investors will reassess valuations and growth assumptions. Bain said MSCI data suggests private software valuations have been hit less than listed SaaS players, although investors are still refocusing on more AI-proof sectors.
That shift could alter deal appetite across the UK technology market. MPs have already warned that Britain must overhaul how investment reaches growing companies, citing low investment, weak scale-up finance, and fragmented public institutions as barriers to productivity. A cautious private equity market adds another constraint for companies looking to finance growth or exit on favourable terms.
Private credit stress adds a second complication. Private equity’s expansion has been closely linked to the rise of non-bank lending, which provided flexible financing when traditional bank debt became more expensive or constrained. Stress in private credit can feed back into deal structures, leverage levels, pricing, and investor confidence.
The third shock, energy price pressure linked to the Iran conflict, reinforces the macro risk sitting behind valuations. Higher energy costs can affect consumer spending, industrial margins, inflation expectations, and interest-rate assumptions. Leveraged buyers can see deal economics change materially when rates and earnings expectations move even modestly.
Private equity activity has not stopped. Strong assets will still attract capital, and businesses with resilient earnings, credible management, pricing power, and visible growth may continue to command interest. Weaker or more exposed companies will face longer processes and more demanding diligence.
The market is moving into a more selective phase. Capital remains available, but conviction is harder to secure. Companies preparing for sale, refinancing, or private capital investment will need operational proof rather than narrative momentum.
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