A year ago, the mood entering 2025 was cautiously positive. Interest rates were falling, inflation appeared manageable, and there was a growing sense that deal markets were finally finding their footing after years of disruption. Then came Q2.

Tariffs, geopolitical turbulence and a loss of momentum through the key spring quarter meant that 2025 never quite delivered the breakout year many had anticipated. Year-end volumes held up reasonably well, but the spring window, so critical to annual deal flow, was effectively lost.

As 2026 begins, the picture is strikingly similar. External forces have again intervened, this time a combination of geopolitical tension and tech valuation pressures, raising uncomfortable questions about whether the market is caught in a cycle it cannot easily escape.

Marcus Shah, Partner and Head of Private Equity at Eton Bridge Partners, sat down with Simon Hill, Partner at Liberty Corporate Finance, to take stock of where the private equity market stands today and what senior executives and investors should be thinking about in the months ahead.

The following is their conversation on where the private equity landscape stands today.

Marcus: When we spoke a year ago, there was cautious optimism going into 2025 with a more stable political backdrop, rates coming down, deal activity picking up. How did it actually play out, and does 2026 feel like a fresh start or more of the same?

Simon: In many respects, more of the same. We came into 2025 in a positive frame of mind: capital was available, the macro picture seemed stable, and sentiment around rates and inflation was constructive. Then Q2 unfolded. Tariffs arrived with confidence and resulting deal volumes subdued in the key spring quarter, and while the year-end held up reasonably well, the dip in activity in the middle of the year was notable.

Now here we are again with the same positive starting conditions, and once more the environment has shifted. The Iran situation and broader tech valuation concerns have introduced fresh uncertainty. We may well be in a Groundhog Day moment, with 2026 looking a lot like 2025.

Marcus: Pitchbook data points to approximately $2trn of PE capital ready to be deployed and around 30,000 portfolio companies waiting to exit. A recent KPMG report also noted that 59% of deals last year were bolt-ons. With that much latent pressure in the system, what is actually holding things up?

Simon: The deals are there and the pipeline is real. Everyone is busy. But getting things over the line remains genuinely difficult and more “deal crafting” is required.

What is gaining traction are transactions where there is a degree of structural creativity: minority sales, bolt-ons, continuation deals, vendor reinvestment to bridge valuation gaps. Strategics have also returned more meaningfully, sometimes on a level playing field with PE, sometimes with a slight advantage. The traditional vanilla auction, eight to ten funds in competitive tension through to a contract race, still happens, but it is increasingly the exception rather than the rule.

“Getting stuff over the line is hard, and what seems to be gaining traction are deals where there is a degree of creativity involved.”

– Simon Hill

Marcus: On continuation vehicles specifically: are they becoming genuinely mainstream, or does a stigma remain that a continuation is what you do when a conventional exit is out of reach?

Simon: I think it’s a broad spectrum of situations in reality, and a key distinction lies in the quality of the underlying asset as well as the market factors affecting it. Where investors have real conviction in a business, a continuation vehicle is an attractive proposition in a market where truly exceptional assets are scarce, reinvesting in your own top performers is a rational and often compelling strategy.

At the other end, there are situations where a continuation is primarily about buying time, allowing earnings or market conditions to develop before a more definitive exit can be achieved. But even then, if the business is fundamentally sound and the structure is managed well, it can be the right answer. The critical discipline is being honest about which situation you are actually in.

Marcus: On sectors, the hierarchy has been fairly consistent for several years now: tech, financial services and professional services at the top, with consumer and industrial well behind. Is that changing?

Simon: It is still a market that leans into those core sectors but it is shifting at the margins. Financial services and services more broadly remain strong. But certain elements of tech, particularly software and SaaS, are experiencing real difficulty with the buyer seller valuation gap at present. Whether this is a short-lived correction or something more structural is too early to judge; AI is clearly influencing how investors assess software valuations, and that is generating meaningful caution.

There is also a discernible move back towards businesses with more traditional, defensive characteristics. Assets that are regulatory or compliance driven, or underpinned by a structural and enduring need, are attracting renewed interest. The implicit logic is straightforward: if a business is not particularly exposed to AI disruption, that is increasingly viewed as a positive.

Beyond the favoured sectors, polarisation remains acute. The strongest assets still command competitive processes and near-peak valuations. Everything else faces longer timelines, thinner bidder pools and a greater risk of late-stage attrition.

“The market is pretty polarised between assets which get the right attention and go through processes in a very competitive fashion, and those that don’t.”

– Simon Hill

Marcus: That polarisation is something we have both observed for some time. I want to push on the human dimension, though, because it is something we encounter consistently in our work. The 2021 vintage is now four or five years in, and average hold periods that were once three to five years are stretching to six or seven. What is that doing to the relationship between sponsors and management teams?

Simon: It is increasingly creating some tension, mostly unspoken. Many of the teams we work with were already several years into a business when their current sponsor invested. They are now five or six years further on, and some are understandably reaching a point where committing to another three or four years is not what they want personally, nor might it be the best approach for the business.

The difficulty is that transparency about that carries its own risk. Signalling an intention to step back, particularly ahead of an exit process, can undermine a leader’s position at precisely the wrong moment. So there is considerable careful positioning happening, with individuals thinking privately about succession and liquidity without necessarily articulating it. Sponsors can find themselves caught off guard as a result.

What is increasingly needed is formalised succession planning at the midpoint of hold periods, approached not as an admission of difficulty but as a practical response to the reality that teams running the same business for seven or eight years may not be, or may not wish to be, the right people to lead it through the next chapter.

“You do not really want to talk yourself out of a job, particularly if you are still in the run-up to an exit.”

– Simon Hill

Marcus: We see precisely that dynamic. Part of the problem is that people are rarely fully open about their intentions, which makes planning genuinely difficult and can create a slow drift in alignment between sponsor expectations and management reality. Is that tension showing up in exit processes themselves?

Simon: It is. Processes are taking longer, and while some of that may simply reflect a return to pre-boom norms, the pattern is consistent: deals progress through round one, enter round two, and then pricing moves in the wrong direction or momentum stalls. Further diligence rounds follow, and quite often the value simply never reaches the required threshold.

The distraction cost is underappreciated. A process running to twelve or eighteen months is a significant drag on the management team, on business performance and on strategic decision-making. That consequence extends beyond the current owners. An incoming investor acquiring a business whose leadership has been largely distracted for two years is not inheriting an ideal platform for the next phase of value creation.

Marcus: As a final question, and given that your firm has worked with over 750 management teams across more than 150 PE houses representing in excess of £200 billion in transaction value, what is your core advice to both sponsors and management teams navigating this environment?

Simon: That collaboration is no longer a desirable quality — it is the defining characteristic of successful outcomes. There are now many businesses where solutions need to be found: hold periods have extended beyond plan, structures may need revisiting, and succession must be addressed. None of that can happen effectively in an adversarial environment. When it becomes combative, it tends to end badly for everyone. The business underperforms, the exit becomes harder to execute, and the management team feels shortchanged, with the attrition that follows feeding directly back into the earnings picture.

The more encouraging point is that almost everything is solvable when parties approach it constructively. Capital is available, the deals exist, and the motivation to reach good outcomes is present on all sides. The breakdown occurs when positions harden or when conversations that should happen early are deferred until they become a crisis.

“Almost everything can be solved if the parties are willing to come together and look at things in a positive way. Where people get entrenched or belligerent, it typically just ends badly for both.”

– Simon Hill

Marcus Shah leads interim management solutions for Private Equity clients at Eton Bridge Partners, with significant experience advising boards and investors pre-deal and placing CFOs across large-cap and high-growth PE-backed businesses.

Simon Hill is a Partner at Liberty Corporate Finance, specialising in management incentives across the full private equity lifecycle.

To find out more about how Eton Bridge Partners can support your portfolio, get in touch with Marcus and the team.