PE’s Dry Powder Pileup Threatens to Lift Deal Prices
Private equity firms expect intense competition for a limited supply of quality companies to push valuations higher, forcing managers to differentiate themselves through sector expertise, operational plans and faster execution, according to BDO USA’s 2026 Private Equity Survey.
Eighty-two percent of respondents expect deal prices to increase over the next 12 months as accumulated dry powder competes for attractive assets. The findings suggest that improving deal activity may not translate into easier underwriting or stronger prospective returns if purchase multiples rise faster than earnings.
Pricing disagreements have also prolonged ownership periods. Eighty percent of respondents said their firms hold portfolio companies for at least five years, increasing pressure to generate operational improvements while waiting for acceptable exits. BDO’s previous survey found 84% of managers reporting longer holding periods, illustrating how the exit backlog has persisted.
Artificial intelligence is reshaping both investment selection and value creation. Ninety-four percent said AI is fundamentally changing their investment theses, with firms applying the technology across sourcing, diligence, portfolio operations and exit preparation.
Private credit remained the most frequently cited primary financing source, selected by 41% of respondents. Its flexibility and execution speed can help sponsors compete, although higher acquisition prices may increase pressure on leverage and returns.
Talent was another constraint: 48% identified recruiting and retaining employees at funds and portfolio companies as their largest obstacle to executing deals quickly.
Managers were optimistic about exit and acquisition channels. Eighty-seven percent expect initial public offerings to become more attractive, while 88% see greater appeal in public-company take-private transactions.
“The private equity firms that will achieve success over the next few years will be the ones taking a proactive approach right now,” said Patrick Donoghue, BDO’s private equity national leader.
Rabin Roberts Research surveyed 400 U.S. fund managers, deal partners and operating partners in May.