Private equity buyouts slump amid AI fears and Middle East conflict
The value of buyouts by private equity groups fell by more than a third in the first quarter of the year, with dealmakers warning that concerns over AI’s impact on software businesses and the ongoing Middle Eastern conflict could hasten the downturn.
In the three months to March, private equity groups agreed acquisitions worth $172bn (£129.8bn), a 36 per cent drop from the prior quarter according to Dealogic.
It also represented an eight per cent drop from the same period the previous year.
Buyout executives and advisers credited the drop to firms holding off signing any deals to the ongoing market turmoil caused by the conflict in the Middle East.
Meanwhile, rising fears about the effects of AI on software groups have also flattened hopes that private equity is recovering after its prolonged downturn.
Software, one of the buyout industry’s more profitable sectors, has faced the wrath of investors fleeing in the face of rapid AI growth, which has squeezed returns.
Sentiment towards software has also soured within the private credit industry, amid growing investor anxieties that the software and technology firms that make up a large portion of the industry’s loan portfolios were uniquely vulnerable to being replaced or disrupted by AI.
Drop in recovery
Speaking to the Financial Times, the head of a large European buyout group said: “We’re in one of the most turbulent periods that I can remember.
“Things are grinding down quite quickly now in terms of activity.”
The executive warned that the worst of the economic impact of the war is yet to come, while the potential disruption to software groups’ business models could have an even greater impact on dealmaking in the next few months.
Within the private credit industry, investors have fled back to the safety of liquid assets, such as stocks and bonds, while others have retreated into cash and money market funds.
The vast quarter-on-quarter drop in the value of buyout deals follows a recovery in the second half of last year, with global deal value jumping to over $900bn in 2025, driven by a handful of megadeals.
This included the $23.7bn takeover of Walgreens Boots Alliance, led by Sycamore Partners, while Aligned Data Centres was taken over by a consortium of investors for roughly $40bn.
Buyout sector woes
But the early year recovery from a period of volatility was brought to a halt by the conflict, also bringing to end the optimism the industry felt towards the state of private equity in 2026.
The value of global private equity exits in the first three months also fell to $162bn, a decline of one-third from the prior quarter.
This also returned the value of global private equity exits to the same levels from the same period last year.
Some funds are reluctant to write down the value of their portfolio companies, many of which purchased during the peak valuation boom of 2020 to 2021, while some institutional investors have become skeptical of the market due to it lagging behind public markets, which have been boosted by high-performing AI stocks.