The 2026 Mid-Year Report highlights a further slowdown in private equity: tech deals plummeted by 70%, the Deal Cost Index reached an all-time high, and the capital cycle lengthened to seven years
The Private Equity Midyear Report 2026 that Bain & Company released in June 2026 says that after the 2H25 recovery (see here a previous post by BeBeez) the sector experienced a further global setback. In 1Q26, buyouts value fell to 173 billion US Dollars (267 billion in 4Q25) and on the ground of the deals that market participants announced up to mid-May 26, in 2Q25 the activity may stand at around145 billion, thus returning to early 2025 levels. The exit market also slowed: after reaching 258 billion in 4Q25, the divestments fell to 170 billion in 1Q26, whilst the 2Q26 could close at around 216 billion, well below the levels recorded in 2H25. The sector seems still far from a true return to normality after four consecutive years of challenging market conditions.
However, Bain says that despite debt and dry powder are available three new shocks occurring in quick succession held back investments: the crisis of confidence that hit the software sector following the acceleration of generative artificial intelligence, the tensions that emerged in the private credit market, and the further deterioration of the geopolitical situation in the Middle East, with the conflict between Israel and Iran and the resulting rise in oil prices. Since the gap between buyers’ and sellers’ price expectations further widened, investment committees started to be much more cautious slowing down again sales processes.
The technology sector received the hardest hit after having been the main driver of the buyout market for years. The value of deals shrunk by almost 70% and plummeted from 65 billion in 4Q25 to just 20 billion in 1Q26. The number of technology mega-deals worth over 1 billion fell from 15 to 4. Investors are still trying to understand what impact artificial intelligence will have on the business models of software companies, and this uncertainty is making it much more difficult to assign convincing valuations to assets.
The portfolio valuations are already reflecting this correction. In 1Q26, the value of buyout funds software holdings fell by an average of 7.9% globally. In the United States, the decline reached 8.9%, whilst in Europe it stood at 4.2%, confirming that the revision of expectations regarding the technology sector affected less the Old Continent market. Bain points out, however, that the decline that private equity portfolios recorded was significantly more moderate than that observed in listed equity markets as investors continue to attribute value in higher-quality assets.
Bain also introduced the Deal Cost Index which combines the average acquisition multiple (TEV/EBITDA) with the cost of leveraged debt used to finance transactions. Whilst funds previously faced either high multiples or high interest rates, both variables today are at very high levels and are pushing the Deal Cost Index and the overall price of a buyout to reach an all-time high. Bain is therefore reviving the “12 is the new 5” concept that already introduced in the previous Global Report and which it still considers one of the sector’s guiding principles today. Whereas ten years ago, annual EBITDA growth of 5% was sufficient to achieve a return of 2.5 times the capital invested over five years, today this figure may necessary be of around 12%. The ability of managers to create operational value in their portfolio companies is therefore even more crucial as financial leverage and the expansion of multiples are no longer sufficient to sustain returns as they were in the previous decade.
However, liquidity is still the sector’s real bottleneck. Distributions to institutional investors are at historic lows: in 2025, they amounted to just 13.4 % of NAV, compared with an average of 25 % between 2010 and 2021. This is the fourth consecutive year in which the sector has distributed less than 15 % of its net asset value, with the result that the average capital cycle has now lengthened to around seven years, well beyond the sector’s historical norms.
The issues on the distribution front impact the fundraising which remains the final cog in the capital cycle set to restart. The market is becoming increasingly polarised in favour of large managers with better distribution track records. At the same time, the bargaining power of institutional investors is also growing: a recent survey of ILPA (Institutional Limited Partners Association) highlights that around one in five LPs is reducing its strategic allocation to buyout funds due to lower available liquidity or less favourable return expectations.
Also exits are holding back. The funds acquired the majority of their portfolio companies in 2021 or earlier for a cheaper cost of capital and higher entry multiples. Many General Partners (GPs) are delaying a sale rather instead of accepting offers below book value as disposals at significant discount could jeopardise the next coming fundraisings. ILPA’s survey also says that over half of investors lose confidence in the manager when an exit is completed at a discount of more than 5 per cent compared to the latest mark.
However, data show that the best assets are still attracting rewards. To check whether the funds’ valuations are indeed too optimistic, MSCI compared the price actually realised in exits completed between 2021 and 2025 with the quarterly valuations that the GPs previously assigned to the same holdings. The analysis shows that 77% of transactions closed at a price higher than the penultimate quarterly mark and that over 70% at a value at least equal to the last mark prior to the sale.
