Over the past two years, the length of the whiteboards displaying portfolio companies awaiting exit has increased significantly in the conference rooms of prominent private equity firms, such as those found on floors in midtown Manhattan, the City of London, and the more sedate areas of Mayfair. Businesses who loaded up on business software assets in 2020 and 2021, paying multiples that made sense when financing rates were close to zero and cloud adoption seemed inexorable, have been circling the names of those companies, searching for windows that keep shutting before the paperwork is finished. In Q1 2026, the window shrank once more.
In the first three months of the year, buyout firms sold assets valued at almost $103 billion. In isolation, the number may seem significant, but it represents a 36 percent decrease from the same quarter in 2025 and falls within a larger M&A market that has generally been bolstered by megadeals, making the private equity deficiency more apparent. At $162 billion, exits decreased 33% from the previous quarter. At $172 billion, buyout activity fell by 36%. 2025 was already the industry’s weakest fundraising year since 2018, with only $86 billion raised, significantly less than the previous year. These numbers are not coincidence; they came all at once.
Important Information
| Field | Details |
|---|---|
| Q1 2026 Exit Volume | Buyout firms completed disposals worth approximately $103 billion in Q1 2026 — roughly 36% lower than the same period a year earlier; still above long-term historical averages but standing out sharply in an M&A market otherwise supported by large transactions |
| Buyout Activity | Buyout deal signings dropped approximately 36% quarter-on-quarter to $172 billion in Q1 2026; exits fell 33% quarter-on-quarter to $162 billion |
| Fundraising | $86 billion raised in Q1 2026 — just below the pace of the same period in 2025, itself the sector’s weakest fundraising year since 2018; limited partners waiting for distributions before committing to new funds |
| AI Disruption Factor | Rapid development of agentic AI — AI systems that perform complex tasks autonomously — is raising questions about the durability of software business models; private equity portfolios carry heavy exposure to SaaS and enterprise software acquired at premium valuations in 2020–2021; stalled exits include EQT’s sale of Thinkproject and TA Associates’ disposal of Unit4 per Bloomberg |
| Iran War Impact | Escalating conflict in the Middle East has caused buyout firms to pause deal signings; war has introduced new inflationary pressure through oil price rises, raising the prospect of rate hikes just as cuts were being priced in; Wall Street’s fear gauge (VIX) trading above levels considered conducive for equity capital markets activity |
| Valuation Overhang | Private equity funds that paid peak pandemic-era valuations in 2020–2021 are reluctant to sell portfolio companies at discounted prices; the gap between what sellers expect and what buyers are willing to pay has widened, particularly in software; a “wait and see” approach has become common |
| Barclays Quote | “It’s unfortunate given events unfolding right now. The whole street went into 2026 with high expectations, in terms of deal activities and primary pipelines.” — unnamed Barclays executive quoted by Bloomberg |
Pulling from different directions, there are two proximate causes. The conflict in Iran is the first. At a time when deal pipelines were warming and rate cuts were being priced in, the conflict frightened credit markets and created inflationary pressure through oil prices. The war’s volatility caused fear gauges to reach levels that rendered equity capital markets activity—the IPO route that private equity companies require for some of their exits—functionally unusable. Several buyout companies completely stopped signing deals. The sector as a whole had high hopes for deal activity going into 2026, as one Barclays official told Bloomberg. Those deals were not destroyed by the violence. They were put on indefinite suspension.
The second reason may be more long-lasting and more structural. The advent of agentic AI, or computers that can carry out complicated activities on their own, has caused instability in the business software valuation framework. SaaS and enterprise software companies, which have been acquired over many years on the basis that their subscription-based revenue, sticky customer relationships, and high gross margins made them as close to predictable cash flow machines as the technology sector offered, are heavily represented in private equity portfolios.
Although the theory has not been refuted, it has been scrutinized to a degree that consumers are still uncomfortable with. The underlying company’s business model will change if an agentic AI system can perform the same tasks as a $200 per seat per month software subscription at a fraction of the price.
Bloomberg’s list of blocked exits is informative. Thinkproject, a European SaaS firm specializing in construction intelligence that EQT purchased in 2020, had been moving closer to a possible sale at a valuation of up to €1.5 billion. The procedure has been put on hold. The sale of Unit4, an ERP software provider for the public sector and professional services sectors, by TA Associates has also stopped. Although neither exit has failed—the companies are still profitable—buyers are no longer coming with the assurance that software multiples were earned in the long run.
Everything is still shaped by the pandemic-era valuation overhang. Even when bidders don’t offer more, corporations that spent 30 to 40 times EBITDA for software companies in 2020 and 2021 are unable to sell at 15 times today. In a future where the competitive threat posed by AI is still really unsettled, the gap is so great that transactions simply do not occur. Neither side is entirely incorrect; they are simply acting on different interpretations of the business’s worth.
As this builds up throughout the sector, there’s a sense that Q1 2026 wasn’t so much a soft quarter as it was the point when a number of issues that had been emerging independently came together. The Iran War is the type of conflict that finally comes to an end, or at the very least ceases to worsen. This is not the case with the AI uncertainties surrounding software valuations. Over the next 12 months, buyers and sellers might discover a new framework for consensus value. Before the exits start to move again, it’s also feasible that the software portfolio housed within these funds experiences a significant decline in value.
