By Edward Valaitis

Private equity did not slow down everywhere at once. The change began with the largest transactions and gradually worked its way toward smaller companies.

That distinction matters for owners of privately held businesses. When headlines first reported a slowdown in private equity during 2022 and 2023, many lower-middle-market CEOs saw little change. Buyers were still calling, add-on acquisitions were being completed, and competition remained relatively healthy.

That insulation appears to be ending.

One Shock, Four Different Timelines

A recent Private Equity Info analysis examined platform investments and exits from 2017 through 2026 year to date. Transactions were divided into four groups: small deals below $50 million, midmarket deals between $50 million and $250 million, large deals between $250 million and $500 million, and mega deals above $500 million.

The study found that the ratio of new investments to exits has converged to approximately 1.5 to 1.7 across every deal-size category. Historically, the ratio frequently ranged from 2.3 to 3.3 investments for every exit.

A ratio above 1.0 means private equity firms are still making more investments than exits. Therefore, the industry is not contracting. But its rate of expansion has slowed considerably.

More revealing is when the slowdown reached each market segment:

• Mega deals declined first, beginning in 2022–2023.
• Large transactions followed through 2024.
• Midmarket deals weakened during 2023–2024.
• Small deals were the last to slow, primarily during 2025–2026.

This looks less like four separate market corrections and more like one financing shock traveling down the market.

Why Larger Deals Reacted First

The Federal Reserve began rapidly increasing interest rates in 2022. Large leveraged buyouts rely heavily on syndicated loans, institutional lending markets and high-yield debt. Those markets react quickly when interest rates and credit spreads rise.

The impact can be almost immediate. The Federal Reserve reports that direct loans and leveraged loans are commonly floating-rate obligations tied to benchmarks such as SOFR, with rates typically resetting every one to three months. Consequently, changes in monetary policy can flow rapidly into a buyer’s borrowing costs. (Federal Reserve)

Smaller transactions tend to use different financing sources, including regional banks, smaller direct lenders, SBA-supported loans, seller notes and larger equity contributions. These channels often adjust more slowly. Smaller acquisitions also require less absolute debt, making them easier to finance when institutional credit markets become unsettled.

Capital may also have moved downstream temporarily. As large transactions became more difficult to finance, some private equity firms pursued smaller platform and add-on acquisitions with lower entry valuations and less financing risk. That may have extended the strength of the smaller-deal market before higher capital costs finally reached it.

Private Equity Has an Inventory Problem

The slowdown is not only about fewer acquisitions. Private equity firms also face growing pressure to sell companies and return cash to their investors.

Bain & Company estimates that private equity firms are holding approximately 32,000 unsold portfolio companies representing $3.8 trillion in value. Buyout holding periods at exit are now hovering around seven years, compared with approximately five to six years between 2010 and 2021. Nearly 40% of portfolio companies have been held for more than five years. (Bain & Company)

McKinsey estimates that more than 16,000 PE-owned companies have been held for over four years—the highest proportion of buyout inventory on record. It also reports that the median acquisition multiple increased to 11.8 times EBITDA in 2025, making disciplined underwriting and genuine earnings growth increasingly important. (McKinsey & Company)

Private equity firms cannot indefinitely raise new funds without demonstrating that they can sell existing investments and distribute cash. As a result, many firms are being pulled in two directions: they must remain highly selective when buying while becoming more motivated to exit mature holdings.

What This Means for Business Owners

For CEOs considering a sale, private equity remains an important source of capital—but buyers are scrutinizing opportunities more carefully. Reliable financial reporting, defensible EBITDA, management depth, customer diversification and a credible growth plan carry greater weight when debt is expensive and investment committees have more choices.

A quality company can still attract strong interest. What owners should not assume is that every private equity buyer has the same urgency, financing capability or investment mandate. Some firms are actively acquiring. Others are concentrating on add-ons for existing platforms, preserving capital or trying to generate exits.

The practical lesson is straightforward: prepare before going to market and create competition among multiple qualified buyers. In a more selective environment, waiting for one unsolicited private equity offer is not a strategy. The best outcomes will go to owners who understand their company’s true market value, anticipate buyer concerns and present the business as an exceptionally well-prepared opportunity.

The private equity market has not disappeared. It has simply become less forgiving—and far more discriminating.