Trifecta of early-year shocks puts brakes on global PE's latest revival for a second consecutive year as 'Groundhog Day' dynamic hits dealmaking again
Winning firms need to lean into value creation, AI adoption, disciplined bets, talent and operational execution as PE confronts a more challenging era
MSCI data shows 'SaaSpocalypse' hit private software valuations less than listed SaaS players - even as investors refocus on more AI-proof sectors; separate MSCI analysis shows over 75% of assets still exit at valuations above next-to-last marks, maintaining historical pattern
Ontra's NDA-based leading indicator for PE deal activity points to deal flow remaining roughly flat through July 2026: stable, but far from a broad-based recovery

, /PRNewswire/ - The global private equity recovery that was gathering momentum at the start of this year has stalled once again, as three rapid-fire market shocks dampened dealmaking, fundraising, and exit activity in the first half of the year, Bain & Company concludes in its 2026 Private Equity Midyear Report, released today.

But as the PE industry grapples with the latest market disruptions, Bain urges that winning PE players should focus on what they can control, while weathering other challenges. The best placed firms will lean into value creation plans, including proactively harnessing AI, and focus scarce resources on disciplined bets to create a true 'right to win', Bain advises.

Today's report charts an 18-month-long 'Groundhog Day' dynamic in global PE. A year ago, early optimism was dashed by tariff turmoil. This year, the buyout market had largely shaken off those concerns, with dealmaking back on the rise, only for that revival to be derailed once again. This time, the setback was triggered by abrupt jolts, in quick succession, from an AI-driven rout in software valuations, redemption stress in private credit, and the energy price spike triggered by the Iran conflict.

Bain's analysis finds that, by midyear, the reversal in PE market conditions sparked by these shocks has been sharp and wide-ranging: bid-ask spreads have widened, investment committees have pulled back, and recovering exit momentum has again run out of steam. Select PE transactions do continue to clear at high prices, but these deals are mostly those involving top-tier assets, Bain reports.

Yet despite these headwinds, Bain's analysis also emphasizes a backdrop for PE dealmakers where there is nothing fundamentally broken in financial markets. Pumped-up public equities continue to defy gravity, the global economy remains in expansion mode, debt markets are open, and there is abundant dry powder to fund deals.

With intensifying pressure on PE general partners (GPs) to buy and sell companies, Bain concludes that it would not take much to unlock a wave of new dealmaking in the second half of 2026, but cautions that a truly sustained PE upturn will depend on the market finding a more fundamental equilibrium lasting more than a quarter or two.

"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," said Hugh MacArthur, chairman of the global PE practice at Bain & Company. "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's analysis sets out a clear prescription for PE's demanding new era under which leading firms can shape a differentiated right to win, building repeatable models for underwriting deals and operational value creation. With hold periods for PE portfolios lengthening, firm resources constrained, and persistent market disruption, Bain also cautions that for PE players the premium on specialization, operational capability, talent, and disciplined execution to set the conditions for success has never been higher.

"The hard work done in market downturns to develop competitive capabilities is often what determines who leads in the next cycle," said Rebecca Burack, head of the global Private Equity practice at Bain & Company. "The uncertainty that's slowing down dealmaking will resolve eventually. The critical opportunity right now is to determine where you can win, and to dig in to make it happen."

Dislocations leave green and red zones for dealmakers as technology valuations slump

Amid 2026's 'Groundhog Day' dynamic of market revival followed by renewed retreat, Bain's analysis of the first-half's dislocations finds a general slowdown in investment and buyout activity, but with an uneven trend across sectors. With the PE industry's overhang of dry powder, GPs are being forced to hunt for deals where they can find them, across 'green zones' where greater conviction exists, and 'red zones' for sectors suffering the greatest uncertainty.

The technology sector falls somewhere in between these green and red zones, Bain concludes. As anxieties over AI's impact clouded valuations for the tech industry, and particularly the software sector, tech deal value slumped by 70% from Q4 2025 to Q1 2026, as fewer large software transactions cleared, the analysis notes.

Proprietary data shows 'SaaSpocalypse' hit private software valuations less, even as investors refocus on more 'AI-proof' sectors

Bain's report also provides the first concrete view of how that AI-fueled uncertainty and so-called 'SaaSpocalypse' in software have translated into private company valuations in software and tech, via a proprietary MSCI analysis of Q1 buyout marks. Through March 31, software valuations in PE portfolios declined by roughly 8% overall. This was far less than the corresponding public market correction affecting the sector, but still meaningful. The decline was also notably more muted in Europe, where software marks fell 4.2%, versus 8.9% in the US.

As tech-focused GPs adjust to the new realities of an AI-inflected world, Bain's analysis warns that uncertainty over tech and software companies' valuations is likely to persist for buyers and sellers, as well as in other sectors significantly impacted by AI. In the meantime, Bain reports that PE firms are rotating capital and investment resources towards businesses perceived as less exposed to near-term AI disruption and macro volatility as PE firms seek deals that allow underwriting confidence.

Deal cost index shows record high, intensifying imperative for 'new math' on value creation and stronger earnings

Bain's analysis also sets out a 'deal cost index' combining purchase multiples and financing costs that have been pushed up by interest rate levels. A record level for this index shows that PE deals are now arguably more expensive than at any point in the industry's history, Bain finds. It notes that while entry multiples have occasionally been higher in the past, and interest rates have been higher in some periods, the combined measure is near all-time highs.

The expensiveness of deals in turn magnifies the imperative for PE to generate operational value and earnings growth, the report observes. Bain's '12 is the new 5' framework, introduced in its 2026 Global PE Report, captures the new math needed: a deal that required only 5% annual EBITDA growth to generate a 2.5x return a decade ago now requires closer to around 10% to 12%.

NDA data points to stable short-term conditions but with signs of a broad-based upturn still to be seen

Considering the outlook for PE for the rest of 2026, Bain examines a leading indicator of likely prospects, using early signal data from Ontra, an AI workflow platform for private markets that processes a significant volume of the industry's non-disclosure agreements (NDAs).

Historically, there has been a strong correlation between NDA activity and deal closings roughly three months later. Bain reports that the latest Ontra NDA data points to PE deal activity remaining roughly flat through July 2026, signaling stable conditions but with signs of a broad-based recovery still to emerge.

Exit logjam and liquidity crunch persist but MSCI data shows valuation marks still hold at realization

Alongside investments, PE exit activity also remains stalled, with Bain reporting little signs of progress towards easing the industry's exit logjam or the resulting liquidity crunch that has slowed the PE capital cycle for years, despite optimism on this at the end of last year.

The industry is coming off a four-year stretch of record-low distributions as a percentage of net asset value (NAV), with the implied capital cycle and holding periods for PE assets now running to approximately seven years - well beyond historical norms. In parallel, PE firms are sitting on around 33,000 unsold portfolio companies.

Growing tension around valuations reflects a self-reinforcing dynamic in the GP-LP model, Bain suggests. A recent poll by the Institutional Limited Partners Association (ILPA) found a majority of LPs losing confidence in any GP when the discount to last mark for assets exceeds 5% on a full exit. Bain's analysis finds that this is creating a powerful incentive for GPs to hold on to portfolio companies and wait for them to "grow into" marks, rather than risk a markdown that could prove fatal to fundraising. Yet the longer assets sit, the more LPs question whether stated valuations reflect intrinsic value.

Despite these tensions, today's report cites a second proprietary MSCI analysis that offers the more reassuring data point that roughly 75% of buyout assets are still exiting above their next-to-last quarterly mark - the GP valuation preceding the final mark before sale, and a cleaner measure of valuation accuracy before significant price discovery occurs during an active sale process. This is broadly consistent with historical patterns, suggesting that in spite of growing skepticism about private market valuations, the premium that buyers have historically paid above marks on exit has not disappeared.

Fundraising remains a grind as LP patience sees its limits tested

With exits continuing to drag and the impact on PE's liquidity and capital cycle preventing the return of capital to LPs, fundraising by GPs also remains mired in the doldrums, Bain reports. It notes that fundraising is the last part of the capital flywheel to recover during PE upturns, with current conditions proving this again.

Overall momentum in fundraising remains uninspiring despite several headline fund closings so far in 2026, including KKR's North America Fund XIV and Bain Capital's Asia Fund VI, Bain says. It concludes that this reflects a bifurcated market in which funds with strong distributions to LPs in relation to paid-in capital (DPI) and internal rates of return (IRR), can still hit targets quickly, but where the broader picture remains difficult.

In what Bain suggests may be an early warning sign for GPs, a recent ILPA poll found that while a large majority of LPs are maintaining or increasing their buyout allocations, roughly one in five indicated that they are reducing allocations to buyouts through the strategic asset allocation process, due to liquidity pressures or concerns about long-term returns. With negotiating leverage continuing to shift in the LPs' favor, winning a fresh funding commitment now comes at an increasing cost in terms of fees or co-investment for the average GP, Bain cautions.

Controlling the controllable: four imperatives for winning firms

Bain's report identifies four principles defining the firms best positioned to lead out of the current slump:

Apply the new deal math: With purchase multiples and financing costs simultaneously at record highs, maintaining past performance requires a dramatically increased focus on value creation - and the specialized capabilities to execute it rapidly.
Lean hard into AI as an accelerator: