Private equity firms are increasingly relying on operational improvement strategies to drive returns as geopolitical volatility, elevated valuations and slower exit markets reshape deal dynamics across Europe, according to new research Alvarez & Marsal.
The professional services firm’s fifth annual European value creation survey finds that geopolitical instability is now viewed as the single biggest challenge facing value creation, cited by 62% of respondents. Tariff volatility and inflation followed closely, each identified by 58% of participants.
With traditional exit routes under pressure, portfolio company performance is being driven more heavily by operational enhancements rather than revenue expansion. A&M’s analysis of recently exited European private equity-backed companies shows that EBITDA growth attributed to margin improvement rose sharply to 51% in 2025 exits, compared with 21.5% in pre-2023 deals. Over the same period, the contribution from top-line growth fell from 78.5% to 49%, underscoring a structural shift in how value is being created.
Despite continued uncertainty, 61% of respondents remain cautiously optimistic about the 2026 exit environment. However, many sponsors are extending holding periods and refinancing portfolio company debt as they wait for more favourable conditions to return to deal markets.
The report highlights a broader evolution in value creation strategies, with private equity managers placing greater emphasis on early-stage operational planning and more disciplined execution throughout the investment lifecycle. As one A&M executive noted, firms that outperform will be those able to identify and implement operational levers from day one, particularly in an environment characterised by higher entry prices and prolonged hold periods.
Liquidity solutions have also become increasingly central to portfolio management. The secondaries market — including continuation fund structures — has emerged as a mainstream tool for generating partial exits, with adoption rising to 43% of firms, up from 24% a year earlier.
At the same time, reliance on forced exits at discounted valuations has dropped sharply, falling from 29% in 2025 to just 7%, reflecting a greater willingness among sponsors to seek alternative liquidity pathways rather than crystallising losses.
Technology is also playing a growing role in value creation programmes, with nearly two-thirds of firms now integrating artificial intelligence into portfolio management, up from 41% last year, as managers seek to enhance efficiency and decision-making in an increasingly complex operating environment.
Overall, the findings point to a private equity market adapting to a more constrained exit landscape by intensifying focus on operational performance, extending hold periods and expanding the use of secondary liquidity solutions.
