Private equity exit activity across Europe and the UK softened in the first quarter of 2026, although market participants expect a pickup once macroeconomic and geopolitical conditions stabilise, supported by substantial dry powder and a growing backlog of assets.
According to data from White & Case, European PE exits declined to 244 in Q1 2026 from 278 in the prior quarter, while total deal value fell significantly from $58.9bn to $32.3bn.
In the UK, exit volumes also eased from 55 to 46 over the same period. However, aggregate value rose modestly to $8.8bn from $8.4bn, indicating a degree of resilience in larger transactions despite a weaker broader environment.
Market activity had previously recovered mid-2025 following a period of disruption linked to geopolitical tensions and tariff-related uncertainty, before slowing again towards the end of the year as financing conditions tightened.
Industry participants note that elevated interest rates and persistent inflation continue to weigh on traditional exit routes, with valuation mismatches between buyers and sellers limiting transaction flow.
With debt costs remaining high, leveraged buyouts have become more challenging to execute, prompting sponsors to explore alternative liquidity solutions in place of full exits.
Structured equity and minority deals gain traction
One notable trend has been increased use of structured equity and minority investment transactions, which allow sponsors to partially crystallise value while retaining exposure to future upside. These structures are also being used to bring in new capital partners without requiring full ownership transfers.
In parallel, continuation-style approaches and partial rollovers are becoming more common, enabling financial sponsors to maintain a stake in portfolio companies while transferring control or bringing in new investors.
Despite current constraints, market participants point to a significant backlog of portfolio companies requiring exits, alongside substantial unallocated capital across private equity funds. Expectations are that deal activity could accelerate rapidly once inflationary pressures ease and geopolitical conditions stabilise.
Some also anticipate that policy developments in Europe could support recovery. Discussions around potential reforms to EU merger control rules – aimed at facilitating the creation of larger domestic champions – could broaden the pool of potential buyers for private equity assets.
Investor focus is also shifting across sectors. While technology and software remain core areas of investment, concerns around artificial intelligence disruption risk have led limited partners to adopt more rigorous due diligence frameworks, including AI-specific assessments at the underwriting stage.
As a result, capital allocation is increasingly tilting towards more traditional industries, particularly industrials and defence, which are benefiting from renewed investor interest amid global security concerns.
Ken Barry, Head of Europe Private Equity, and Ben von Maur, Head of London Private Equity at White & Case, said that while Q1 activity was subdued amid heightened geopolitical uncertainty, conditions could improve quickly once sentiment stabilises.
They noted that significant dry powder remains in the system, alongside a sizeable pipeline of assets awaiting exit windows, with both buyers and sellers under increasing pressure to complete transactions.
They added that in the near term, alternative liquidity mechanisms—including structured equity deals and partial exits—are likely to remain prominent, particularly if financing conditions remain restrictive.
They also highlighted the potential for further public-to-private transactions, as continued pressure on UK public markets may encourage sponsors to pursue take-private opportunities.
