Private equity faces intensifying competition with higher performance demands and liquidity pressures in 2026

Private equity is entering an era of intensified competition that will force firms to squeeze faster cash and deliver materially greater operational improvement at portfolio companies, according to Bain & Company’s Global Private Equity Report 2026.

According to the report, global buyout deal value jumped 44% in 2025 and exit value for buyout-backed assets rose 47%, signalling a sharp rebound in activity last year. But Bain warns that headline growth masks structural strains on the industry’s ability to return capital to investors. Distributions as a share of net asset value have remained below 15% for four consecutive years, the report finds, undermining limited partners’ capacity to redeploy capital and constraining fundraising.

A central insight from Bain is that the performance bar has risen substantially. Rebecca Burack, partner and head of Bain’s global PE practice, told Private Equity International: “12 is the new five”. “A few years ago, if you were looking to create a 20 percent IRR or a 2.5x money return, you needed to increase the EBITDA of your business 5 percent annually over five years. Now, that number is 12 percent,” she said. Burack said firms must assess upfront how feasible target improvements are and ensure their screening, diligence and post-acquisition playbooks are closely aligned to execution.

Bain quantifies the scale of the backlog that is adding to the liquidity squeeze: roughly 32,000 unrealised assets, predominantly buyout-backed, with an estimated value of $3.8 trillion. Holding periods at exit have lengthened to about seven years on average, versus roughly five to six years through 2010–21, and nearly 40% of buyout-owned companies are now held longer than five years. Continuation vehicles now account for around 10% of exit value, a useful tool but, the report cautions, not a comprehensive remedy for the industry’s constrained cash flows.

The report also highlights the pressure created by ageing dry powder. Bain estimates global buyout dry powder at approximately $1.3 trillion, much of it raised in 2022–23 vintages, creating urgency for general partners to deploy capital even as competition for attractive assets intensifies.

Other industry analyses corroborate the wider rebound in dealmaking while drawing attention to scale and concentration. McKinsey’s Global Private Markets Report notes a 19% rise in private equity deal value in 2025 to about $2.6 trillion and estimates buyout activity across all sizes at nearly $1.8 trillion, its second-highest year on record. Bain’s own Global M&A Report 2026 similarly records a strong year for M&A, with global deal value up 40% to $4.9 trillion and growing adoption of AI tools across deal teams, trends that are reshaping diligence and post-deal value-creation workstreams.

Certain sectors stand out. Bain’s specialised healthcare private equity coverage found record healthcare PE deal value in 2025, near $190 billion, driven by large-scale transactions and strong activity in biopharma, providers and healthcare IT, with exit value also rebounding sharply. The scale and sector concentration of these deals underscore why private equity firms must sharpen operational playbooks and invest in sector expertise to meet the heightened EBITDA-growth expectations.

The report points to factors behind the tougher return dynamics: elevated entry multiples for many assets, the lingering impact of higher interest rates on target return calculations, and a competitive market with more bidders chasing fewer high-quality opportunities. Bain stresses that investors are increasingly selective, favouring managers with clearly articulated, repeatable strategies that can reliably deliver top-tier performance and timely capital returns.

Bain’s assessment is cautious about the near-term outlook for liquidity. While the firm sees signs of an improved exit environment in 2026, it warns that cash must still flow through the system before distributions meaningfully lift. That matters for fundraising cycles: unless more full exits occur, limited partners will remain constrained in their ability to allocate fresh capital, perpetuating pressure on GPs to demonstrate quicker, deeper value creation.

The resurgence in deal and exit values in 2025 included some headline-defining transactions: Bain highlights that the $56.6 billion take-private of Electronic Arts set a new buyout record, illustrating how very large, sponsor-backed deals are again material to industry aggregates. Yet Bain concludes that the recovery of last year was relatively narrow compared with the industry’s peak in 2021, leaving many firms to confront a more demanding competitive landscape.

For managers, the implications are clear: securing attractive entry prices will no longer suffice. Firms must be confident they can identify and execute the specific operational levers that will drive sustained EBITDA expansion, often at rates substantially higher than in prior cycles, while also shortening hold periods where possible to restore liquidity for investors. Failure to adapt, the report suggests, will leave some managers unable to meet investor expectations in this hyper-competitive environment.