Capital & Credit
Q2 2026
Private Equity: The Holding Period Is the Investment
U.S. private equity did not stop transacting in the second quarter. It moved down in size and up in selectivity.
Deal value fell 37.5% from the first quarter to $177.3 billion, the lowest quarterly total in two and a half years, while estimated deal count rose 11.5% year over year to 2,384, PitchBook reported. Transactions of $2.5 billion or more produced only five deals totaling $25.9 billion. Take-private value fell 90.1% sequentially to $6.2 billion across 11 deals.
An estimated 885 add-ons accounted for roughly three-quarters of buyout count. The installed portfolio, not the new platform, became the industry’s center of gravity.
The appeal is straightforward. An add-on requires a smaller equity check, can borrow against an existing platform and arrives with a synergy story attached.
The Quarter Moved Down in Size and up In Work
Smaller deals reduce financing risk but demand more operational attention.
Add-Ons Are Not Automatic Synergy
A roll-up without integration is simply a collection of companies sharing a lender.
The Cheap Multiple Sends an Invoice
Lower-middle-market discounts often represent systems, people, and processes the buyer must supply.
It is not automatically safer. It moves risk from underwriting to integration. The sponsor still must consolidate systems, customers, facilities, contracts, people, pricing and working capital. An acquisition that looks accretive in a model becomes expensive when the platform discovers incompatible ERP systems, duplicate inventory, customer attrition or a management team too thin to absorb another business.
Growth equity was the only major segment to increase year over year — another sign of a preference for flexibility. Minority and structured investments can fund expansion or succession without forcing a mature buyout capital structure onto developing cash flow. The trade-off is governance. “Minority” describes the percentage owned, not the influence exercised.
The inventory problem.
Exit value fell 46.3% sequentially to $102.6 billion, with 23 exits of $1 billion or more generating 61% of the total. U.S. private equity now holds 13,509 portfolio companies — more than a decade of inventory at current pace.
A few large realizations make a quarterly chart look healthy. They do not restart the recycling mechanism across the manager base.
Fundraising is absorbing the consequence. U.S. PE funds raised $159.6 billion across 223 vehicles in the first half, but funds below $1 billion captured only 16.7% of commitments.
Experienced firms raised $139.3 billion against $20.3 billion for emerging managers. Only 23 first-time funds closed, against an annual average of 181 between 2021 and 2023.
Limited partners are emphasizing distributions to paid-in capital because paper appreciation does not fund the next commitment. PwC calls DPI the defining fundraising metric of 2026.
The cheaper multiple comes with chores.
At year-end 2025 the median entry multiple for companies with $500 million to $1 billion of enterprise value was 13.4x EBITDA, against 8.8x for deals between $25 million and $100 million. Median net debt was 5.2x in the larger category and 2.5x in the smaller.
The upper middle market now resembles large-cap private equity: competitive auctions, more leverage, sophisticated management, greater dependence on a liquid exit. The assets may be more durable, but the price leaves little room for an ordinary outcome.
The lower middle market offers a different proposition, and a bill. Smaller businesses carry greater customer concentration, less developed reporting, undocumented processes, owner-dependent relationships and a controller who also runs HR and IT.
The lower price often represents work that has not yet been done. McKinsey reports that private equity firms have more than doubled the average size of their operating groups since 2021.
The best lower-middle-market investments are not the cheapest companies. They are the ones where the missing capabilities are identifiable, fixable and worth more than they cost to install.
Consumer: what the returns data now says.
The food and beverage buyout math has changed, and the StepStone data makes the change legible.
Median purchase prices in the segment rose from 8x EBITDA in 2017 to a peak of 12.5x in 2021, eased to 9.1x in 2024, then rose again to 10.4x in 2025. Debt held steady at roughly 4x EBITDA throughout.
For deals done between 2013 and 2018, about 58% of profit came from EBITDA multiple expansion. For deals done between 2021 and 2025, that share fell to about 16%. Over the same period the contribution from margin improvement moved from -8% to 17%, and revenue growth remained the largest source of return throughout — rising from 71.1% of contribution to 98.4%. Debt paydown detracted in both windows.
Deals from 2021 to 2025 are mostly unsold, so the figures are directional and rest on small per-year samples. Directionally, the mechanism that carried returns in the earlier vintages has largely stopped contributing, leaving revenue and margin to do the work.
The public market says the same thing. Multiples across the large-cap group track pricing power and category growth, not either alone. Monster Beverage trades at 33.8x EV to trailing 12-month EBITDA and Coca-Cola at 20.7x. Keurig Dr Pepper sits at 19.2x, Mondelez at 19.6x, Nestlé at 17.3x, Hormel at 16x, PepsiCo at 13.9x, Danone at 13.4x, Unilever at 13.1x and Anheuser-Busch InBev at 11.8x. Kraft Heinz holds the group’s lowest multiple at 5.3x, pairing weak pricing power with stagnant categories.
British American Tobacco, at 9.5x, illustrates the pattern. It has real pricing power, offsets structural volume decline with price and mix, leads globally in nicotine pouches and vapor, and announced operating cash conversion above 95% with continued deleveraging toward a 2x-2.5x net debt target. The low multiple reflects a market still pricing shrinking cigarette volumes that pricing power can slow but not reverse.
Paper Returns Do Not Fund Commitments
DPI is becoming private equity’s truth serum.
The Brand is Not A Mote
Consumer value depends on repeat demand and contribution margin after the full cost of reaching the customer.
Land Can Support the Deal; It Cannot Run the Plant
Agricultural real estate, operations, processing, and intellectual property must be underwritten separately.
Does the product generate repeat purchase without constant promotion? Is retail velocity improving as distribution expands? Can gross-to-net deductions be reduced? Is there pricing power beyond a narrow cohort? Is manufacturing proprietary, contracted or easily replicated? Can channels expand without destroying contribution margin? Is the brand creating useful first-party data? And what happens when the retailer launches a comparable private-label item?
Carve-outs present the other opportunity, and a hidden cost. A carve-out discount is often a separation bill in disguise: finance, technology, procurement, sales support, distribution, manufacturing arrangements and working capital that previously sat inside the parent. Transitional-service agreements also expire on a schedule the buyer does not control.
With Keurig Dr Pepper splitting, Hormel divesting and Conagra and Nestlé simplifying, that pipeline is about to widen considerably.
Agriculture: buy the system, not the acreage story.
Agricultural assets do not operate on a fund’s timetable.
The first task is to separate the assets. Agricultural real estate, the farming operation and the processing business generate different returns and belong to different risk pools.
The most attractive agrifood platforms carry more than commodity exposure — differentiated genetics, contracted supply, proprietary processing, recurring royalties, specialized distribution or a valuable customer specification. Paine Schwartz’s July structured minority investment in AMFRESH and BLOOM FRESH illustrates it: BLOOM licenses more than 100 proprietary fruit varieties to over 3,000 growers across 26 countries, earning from genetics, intellectual property and royalties rather than acreage.
Value-added processing fits the buy-and-build model, with industrial risks an acreage presentation may obscure: food safety and recall exposure, utilization and bottlenecks, water and labor and energy, deferred maintenance, supply and customer concentration, yield loss and shrink, pass-through provisions, seasonality and permitting.
In agriculture the unit of account should not be acres. It should be dependable throughput, contracted demand and cash generated across the cycle.
Sector rotation.
Software private equity deal value fell to $10.7 billion in the second quarter, down 65.7% year over year and more than 90% below its peak, as investors reconsidered differentiation, development cost, pricing power and the useful life of software revenue.
Energy moved the other way, with first-half deal value up 80.5% as power generation, grid equipment, datacenter infrastructure and cooling became inputs to AI deployment.
Capital did not leave technology. It moved toward the physical and contractual infrastructure underneath it — plants, permits, power connections, distribution networks, genetics, customer approvals, food-safety systems and local operating knowledge. None of that can be reproduced with a software release.
Operator move.
- Favor targets where pricing, procurement, cross-selling, utilization or working-capital discipline can create value without an aggressive exit multiple.
- Treat add-ons as integration programs with accountable owners, budgets, milestones and synergy tracking.
- Prepare audit-ready financials, repeatable forecasting and a second layer of management before an exit becomes urgent.
- Evaluate a sponsor’s closing leverage, remaining fund life, operating resources, follow-on capacity and behavior when prior portfolio companies missed plan — alongside the headline price.
- For agrifood, separate the returns and capital needs of land, operations, processing and intellectual property.
The Holding Period is Now An Operating Period
When leverage and multiple expansion stop doing the work, management has to.
It’s a market that rewards patience and strong fundamentals.
Closing Note
In a capital-scarce environment, the mantra is “fortify and strategize.”
