Private equity faces ‘sharp shock’ of triple threat stalling market momentum
The global private equity market has stalled as it faces a triple-shock of issues which are contributing to a slowdown in market momentum, according to new figures from Bain & Company.
The Big Three consulting firm said in its midyear report on private equity that the industry, “which was gathering momentum at the start of this year, has stalled again” as “three rapid-fire market shocks” disrupt firms’ growth.
The industry’s headwinds include a private credit squeeze, the energy price spike triggered by the Iran conflict, and a drop in software and tech valuations – recently one of the hottest targets for private equity investment – due to anxiety over AI disruption.
Bain & Company said this is causing a “Groundhog Day dynamic” in the global private equity market where deal-making is stalling again after 18 months of it rising following a fallout from President Trump’s “tariff turmoil” which froze market growth last April.
For private equity firms, the effects from the downfall in market conditions sparked by the triple-shock of issues “has been sharp and wide ranging”, according to the consulting giant.
The gap between buyers and sellers has widened as market anxiety is causing buyers to drop how much they are willing to pay, but sellers are not budging on their valuations.
Alongside this, firms’ investment committees, charged with approving deals, are pulling back on spending and the “momentum” of firms cashing out and profiting when selling a business has “run out of steam”.
“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,” said Hugh MacArthur, global PE practice chairman at Bain & Company.
Firms should be ‘proactively harnessing AI’
As the private equity market faces growing volatility, the consulting giant said firms should “focus on what they can control, while weathering other challenges”, recommending that success will come from “proactively harnessing AI” in particular.
The technology, it said, “is rapidly becoming one of private equity’s most important creation levers”, and companies already embedding AI directly into what they do are reaping the rewards.
Those benefiting most are using AI to redesign workflows, organising their data to use in training their AI tools, and creating projects using the technology across the whole company.
“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,” MacArthur said.