2026 private equity outlook: Firms will need to do more to win
In 2026, middle-market private equity firms will face heavy competition over a limited number of high-quality deals. While the private equity sector as a whole has ample cash to burn, with over $2.5 trillion in dry powder reserves held globally, mid-market firms are making it a priority to avoid risk and not overpay for acquisitions, which is shrinking the deal pool to a smaller number of companies.
To win those deals, firms will have to get humble, work harder and focus on business fundamentals. In the current sellers’ market, firm leaders will need to build strong relationships with business owners to complete acquisitions — and once an acquisition occurs, teams should also be prepared to do more grunt work inside the business than may have been necessary in years past.
Keep reading to learn more about key trends that will affect mid-market private equity firms in 2026.
What are the major trends that will shape the private equity market in 2026?
Don’t get too bearish or bullish heading into 2026. There will be quality deals on the table, but there’s also a disconnect between what sellers want and what private equity funds are willing to pay, which will help keep the market highly competitive.
Here are key trends to keep an eye on:
- Interest rate reductions: The Fed began cutting rates in 2025, and analysts expect more in 2026. What we don’t know is the extent of the cuts, which will play a role in determining whether firms feel comfortable embracing leveraged buyouts.
- Deal quality: There are plenty of buyers and sellers in the market. But many sellers are still looking for payouts similar to what was commonplace a few years ago — prices buyers are no longer willing to pay. This disconnect has substantially limited the number of quality deals available to pursue.
- Easy money: The stock market is likely overvalued, with talk of an AI bubble continuing to rise. However, PE firms are actually finding it easy to raise money right now, as investors look to hedge their bets against a market correction.
- Tax stability: The tax and budget bill that Congress passed over the summer almost certainly locks in tax policy for at least the next three years. Firms will benefit from having greater clarity and predictability in this area.
- Nuanced risk appetite: Private equity firms are generally avoiding risk, unless it’s cheap. Look for longer pre-diligence periods on deals except when the seller is willing to come down significantly on price.
- Longer-term horizons: Many firms invested over-aggressively in 2021 and 2022, only to realize that turning those companies around would be slower than expected. As a result, firms are currently holding onto acquisitions longer than in the past.
- Cybersecurity adding value: For most businesses, a cyberattack is essentially inevitable. Recognizing this, PE firms will increasingly pay more to acquire companies that take cybersecurity seriously.
What are the big challenges private equity will need to overcome in 2026?
In 2026, private equity will have to confront challenges like uncertainty, intense competition and the need to work harder to achieve the same financial results as in years past. Here are some important areas to be aware of:
- Uncertainty: Everybody wants stability, but that doesn’t exist right now. The country and economy as a whole are going through a period of significant uncertainty, which means private equity, like the rest of the world, will have to factor in the reality that no one knows what’s going to happen next.
- AI overexposure: Some firms are partnering with tech giants to finance data center construction, with private equity firms investing capital upfront and tech companies leasing access to the data centers from their PE partners. If AI does prove to be a bubble, this could leave PE holding the bag on losses, although firms are also mitigating risks by creating and selling financial instruments based on those leases.
- Underperformance: 2026 will probably not be a blowout year for private equity. Firms need to set realistic expectations with investors about what they can deliver. Equally important, leaders need to be honest with themselves about how they can create ROI before they actually complete an acquisition.
- Talent retention issues: With a lower volume of deals getting done, people who get paid by participating in the deal flow may exit the industry — or leave to start their own shops. Assess your talent retention options to make sure you keep your people happy.
- Increased competition: Fewer high-quality deals means more competition over those that do exist. Firms can’t rest on their laurels, and neither can the consultants who work with them, because they’ll lose out to hungrier rivals. Be prepared to differentiate yourself during negotiations and explain the specific experience you can offer when talking with sellers.
- Financial engineering isn’t enough: It’s no longer enough to buy a company, punch up its marketing and sales process and then sell it. Instead, get ready for on-the-ground work like negotiations with vendors, suppliers and deal partners. To be blunt: You will need to work harder than you have before and be prepared to engage more in the human side of the business.
What will it take for private equity firms to win deals in 2026?
Private equity firms looking to buy in 2026 will face a sellers’ market. Founders and owners of attractive companies will have their choice of PE bidders with whom to do business.
So how do you stand out? Hard work and a relentless focus on developing relationships with sellers.
To win deals, you need to connect on a human level. Many of the sellers you’re negotiating with have spent years, even decades, building their businesses, and most will notice if you show the respect and humility to learn from what a seller has already accomplished.
And if you can, build those relationships face-to-face. Private equity, like so much of the world, got used to working over video calls during and after the pandemic. But today, you might need to spend more time on the road to close deals.
Because there’s so much uncertainty and the pace of change in the world is so fast right now, hold loosely to any assumptions you make about a business you acquire. How things work today might need to change tomorrow.
Many sellers inherently understand this, having lived through cycles of ups and downs before, so if you can demonstrate that kind of adaptive, flexible mindset, you’ll also help reassure them that their business will be in safe hands.
How Wipfli can help
We advise private equity firms on deal-making, taxes, mitigating risk and how to grow portfolio companies. Let’s talk about your goals for 2026 and how we can help you meet them. Start a conversation.
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