Private Equity Shifts to Smaller Deals as Market Uncertainties Persist

The report highlights three primary market shocks that constrained large-scale capital deployment: sustained high interest rates, energy-driven inflation stemming from instability in Iran, and mounting uncertainty regarding AI-related valuations. These factors pushed investors toward smaller, more predictable targets where pricing risks are easier to quantify.

Data from the second quarter underscores this trend, with just five major transactions exceeding $2.5 billion. Conversely, add-on acquisitions now represent approximately three-quarters of all buyout activity. While software deal value cratered by 65.7% year-over-year, energy-related transactions surged 80.5%, fueled by rising power demands for data centers.

Scott Moss, Partner and Financial Services Industry Leader at Cherry Bekaert, notes that the existential question for sponsors has become how a company's competitive position holds up against rapid AI integration during a standard hold period. This uncertainty has created a backlog of 13,509 PE-backed companies waiting for exits, even as IPO activity saw a sequential 42.2% increase. With dry powder reserves hovering near $1.07 trillion, the firm expects continued volatility, with carve-outs and private credit solutions likely to define the remainder of the year.