If you're a GP, operating partner, or LP reviewing your 2026 allocation strategy, the headlines look reassuring:

• Deal value surged

• Exits rebounded

• IPOs reopened

• Megadeals returned

But beneath the surface, the return model has changed.

The latest 2026 data from Bain and McKinsey show a structurally tighter environment:

• Activity is up

• Liquidity is not

• Multiples remain elevated

• Operational alpha now carries the burden

Here’s what that means for private equity decision-makers this year.

1. 40% dry power, higher value, lower count

Buyout deal value increased 44% in 2025 to $904B, the second-highest year on record (per Bain’s global PE report).

Meanwhile, McKinsey reports that buyout and growth deals above $500M rose 44% to over $1T, the highest year ever for deals of that size.

However:

• Overall deal count declined 6%

• Median buyout entry multiples rose from 11.3x to 11.8x EBITDA

• Over 40% of dry powder has been sitting for more than two years

The market narrative suggests that capital is concentrated in fewer, larger transactions at historically high entry prices.

Despite the higher deal value, recovery is top-heavy, driven by megadeals, diluting the averages and the performance in the bottom 25%.

If your underwriting still assumes multiple expansion as a core return driver, the math is deteriorating. This is leading the principles behind our new operating partner playbook deployed since 2025.

2. Exit value rebounded, liquidity hasn’t

Bain reports that nearly 80% of GPs expect multiples to stay flat in 2026.

McKinsey observes bid/ask spreads have converged and median exits are only modestly above held values (0.3 turns), with “A-grade” assets pulling through.

Distributions as a percentage of NAV have remained below 15% for four consecutive years - an industry record.

McKinsey adds that:

• Over 16,000 companies have been held for more than four years

• Average hold periods exceed 6.5 years

IRR historically stagnates after year seven of ownership.

This is the core tension in 2026:

GPs are extending holds to manufacture EBITDA growth, but extended holds structurally compress IRR. Continuation vehicles and secondaries are rising, but they are liquidity tools - not value-creation engines.

And with flat multiples, the traditional buy-and-sell playbook is nearly impossible to execute today. Operators today need to tick different boxes in new PE checklists required in 2026.

3. Returns are lagging behind public markets

Between 2010 and 2022, 59% of returns came from multiple expansion and cheap leverage.

In 2025:

• Top-quartile buyout IRRs averaged 8% on a pooled basis

• S&P 500 returned 18%

• MSCI World returned 22%

Older vintages (2015–2017) are generating ~2% IRRs.

Private equity is no longer automatically outperforming public markets on a pooled basis.

Exit markets are “open,” but they are selectively open. The best assets exit. The rest extend hold periods and shift into secondaries and continuation structures.

The GlobalCapital survey signals that market participants expect spreads to widen from multi-year lows in 2026 for several debt layers.

That environment tends to reinforce a simple point: refinancing and recap flexibility can tighten quickly, and optionality should not be assumed.

Portfolios need a “liquidity-aware operating plan,” not just a value creation plan. That includes cash conversion and exit readiness signals earlier in the hold period.

4. Fundraising has split the market

Buyout fundraising declined 16% in 2025 and European fundraising dropped 41%. Additionally, APAC declined 49%.

Meanwhile, top-tier funds with strong DPI closed faster.

Fundraising pressure is now flowing downstream into portfolio operations. When DPI becomes central, portfolio performance timelines become political.

LPs today are prioritizing:

• IRR

• MOIC

• DPI (now tied as the second most important metric)

When LPs care more about DPI and timing, GPs become more sensitive to:

• Hold-period drift

• Value creation plan slippage

• Execution visibility

The value creation function becomes a fundraising function indirectly, because it is what enables realizations on schedule.

Five-year rolling DPI hit its lowest recorded level in 2025 in McKinsey’s report. Liquidity is now a competitive differentiator.

And thinking about second-order consequences, the operating cadence must be defensible and consistent at a portfolio level, not just “company by company”. That is why shared frameworks and operating backplanes are emerging inside firms.

5. “12 is the new 5”

Bain defines the core reframing between the 5% annual growth targets required in 2015 and the 12% targets today led by unit economics (labeled as 12 is the new 5).

Higher rates + higher multiples + longer holds = compressed margin for error.

Historically, a deal could clear return hurdles with mid-single-digit EBITDA growth supported by leverage and multiple expansion.

Today, that math no longer works.

EBITDA growth must compensate for:

• flat exit multiples

• higher financing costs

• longer capital duration

Compared to growth initiatives planned in older playbooks, GPs and operators focused on EBITDA optimization should:

• Start earlier

• Compound faster

• Be execution-backed, not financially engineered

Most value creation plans still stall within the first 100 days.

The structural reason is simple: execution systems lag deal ambition.

6. AI is a force multiplier, not a strategy

Only 6% of GPs see AI having high impact in current operations.

70% expect it to materially impact their processes within 3–5 years.

The competitive edge today is not AI adoption. Particularly in PE companies focused on traditional businesses: professional services, construction, finance, healthcare (and many others), inventing LLM-based products is not the core narrative that moves the needle.

What makes a difference, albeit taking longer, is AI deployment inside:

• Underwriting

• Pricing discipline

• GTM execution

• Margin expansion

• Working capital velocity

With increased revenue growth targets, headcount cuts aren’t top of mind for PE companies with a proven business model. It’s revenue expansion and growth, where AI can increase efficiency and improve productivity when applied correctly, within the guardrails and governance principles.

In 2026, firms that operationalize AI into EBITDA expansion will widen the gap. The rest will experiment.

The structural shift in PE

The industry has not returned to 2021. It has matured.

New structural realities today:

• Capital is abundant but aging

• Multiples remain elevated

• Liquidity is constrained

• IRR math is more sensitive to hold duration

• LP scrutiny has intensified

• Operational alpha is mandatory

While cycle-driven environments were common in the past - the 5-year buy-through exit cycle and predictable IRR growth - the model is less dependent on financial engineering today.

Execution-driven organizations with strong operating partners and GTM engines are clearly achieving strong results. This is what progressive PE firms are mimicking and adopting in the new year.

What this means for operating partners

If:

• Entry multiples are 11–12x

• Leverage is no longer cheap

• Exit timing is uncertain

Then EBITDA growth and cash conversion must be engineered. And traditional “finance engineering” is simply not enough.

The core model that operating partners should incorporate further:

1. Board-level governance clarity

2. Execution visibility inside GTM and RevOps

3. Margin protection through pricing discipline

4. Working capital velocity management

5. Technology deployed for throughput, not dashboards

The firms that institutionalize this will outperform.

The firms that rely on macro normalization will not.

Mario

📈 On value creation and EBITDA growth - how RevOps augmentation plays a critical role in mid-market companies (and takeaways from our portfolio).

💼 Micro case study on a B2B SaaS acquisition - the variance between GTM interpretations and how we incorporated our value creation playbook into a successful acquisition journey.

📗 Unlearning vs. upskilling. A write-up in ERI I co-authored demonstrates some nuances of unlearning “old habits” as a practical alternative to learning new skills. In a drastically different world we live in - between the macro/geo pressure and AI augmentation - relying on old principles may carry more burden than solve real problems. This is one of the reasons why vibe coding and other hip terms that Gen Z is now deploying at scale can be truly progressive, unburdened by some old habits.

Europe is still funding AI infrastructure, not just apps. Axelera’s $250M round backs inference chips for industrial workloads and software that lowers adoption friction.

The signal here is workflow compression. Pathwork is using AI to accelerate broker workflows from intake to placement while scaling carrier-side automation in parallel (per founder interview).

Hospitality AI gets funded where labor meets revenue leakage. Slang AI’s funding reinforces a broader pattern - vertical AI wins when it improves throughput and monetization in labor-constrained service environments.

CMS just raised the bar for auditable automation. Prior authorization won’t be fixed by AI alone but policy pressure is making compliant, explainable automation the only credible path to scale.

Subscription eCommerce Brand: An established membership-driven eCommerce brand serving women in business with 1,500 members and predictable recurring revenue. Generating over $16K in monthly profit with strong retention, it’s offered at $504,543.

Vegan Meal Delivery Ecommerce: A long-standing vegan meal delivery brand with proprietary recipes and consistent profitability. Generating about $17K in monthly profit with durable demand, it’s priced at $579,000 (reduced 14%).

Automotive CRM SaaS: A niche B2B CRM platform for the automotive sector with growing client adoption and strong margins. Producing nearly $13K in monthly profit with expanding ARR visibility, it’s listed at $706,844.

Outreach Verification Platform: A 4-year-old automated phone verification platform that improves call accuracy and reduces SMS waste for outreach teams. Generating over $40K in monthly profit with steady usage and clear enterprise value, it’s available at $5,000,000.

Working with me

🌐 Scaling $30M - $100M+ mid-market companies with value creation through RevOps, data engineering, and WordPress. DevriX provides full RevOps consulting + delivery with GTM enablement for PE-backed portfolio companies, traditional tech, healthcare, finance, and professional service businesses pacing toward revenue growth initiatives. Our standard retainers between $10K and $60K include revenue lifecycle services for marketing and sales leaders, FP&A for financial teams, pipeline enrichment through websites and dozens of lead sources, automations and delivery integrations, CRO and ongoing testing, product delivery and platform integration solutions, and more through our consulting solutions.

🚀 1:1 Consulting. At Growth Shuttle, I run two popular plans: Async Advisory ($3,500/mo) for $3M - $30M founders and executive teams and the smaller Strategic Growth Circle ($997/mo) for $100K - $500K entrepreneurs, agency founders, scale ups. My fractional executive plan is also available here.

📈 Building US LLCs from Europe. I help European and Asian founders scale faster through doola and their “Business in a Box” model. Also suitable for US citizens (given their bookkeeping solution), but in very high demand across Europe.

📊 Post-Merger Integration. I support M&A initiatives through Flippa’s marketplace. Working closely on PMI initiatives for PE companies and fast-growing startups integrating new companies within their portfolios, enabling data pipelines, and securing more deals through my personal network.