European Private Equity in 2026: Leverage, Dry Powder, and the Exit Backlog
Tim Guntermann
Founder & Managing Partner
European private equity enters 2026 in a curious position: dealmaking has recovered convincingly, yet the industry's underlying liquidity problem — the difficulty of returning cash to limited partners — has barely eased. Understanding that tension is essential for any sponsor planning platform acquisitions, exits or fund-raising over the coming year.
A convincing recovery in activity
The recovery is unambiguous. McKinsey's 2026 Global Private Markets Report records global private equity deal value rising 19% to USD 2.6 trillion in 2025, while Bain & Company, measuring buyout value excluding add-ons, reports a 44% jump to USD 904 billion — the second-best year on record. Bain notes that thirteen transactions of USD 10 billion or more accounted for around USD 274 billion, close to a third of total buyout value. The two figures differ because the methodologies differ, but both describe a market firmly back in motion.
Europe shared fully in the rebound. PitchBook's 2025 Annual European PE Breakdown puts regional deal value at EUR 649.5 billion — among the strongest annual totals on record — with buyouts accounting for roughly EUR 504 billion across more than 6,000 transactions. A notable driver has been US sponsors redirecting capital toward European assets, drawn by relative valuations and a deep mid-market that absorbed about two-thirds of fund-raising.
Leverage has recovered without becoming aggressive
LCD data shows total debt to EBITDA on European buyouts rising to 4.91x in 2025, from 4.58x in 2024 — still comfortably below the ten-year average of 5.48x. Equity contributions, meanwhile, climbed to around 47%, near record levels.
The picture is one of lenders willing to support transactions but on conservative terms, with sponsors writing larger cheques to bridge the gap — conditions that reward operational value creation over financial engineering.
Capital to deploy has rarely been greater
Bain estimates global buyout dry powder at roughly USD 1.3 trillion, a record, much of it aging 2022–2023 vintage capital now under real pressure to be put to work; Preqin's broader measure of total private-equity dry powder approaches USD 3.7 trillion. That overhang is part of what drove competition for quality assets through 2025, and it underpins the case for continued activity in 2026.
Where the strain shows: exits and DPI
The exit side is where the tension surfaces. Bain reports global buyout exit value up 47% to USD 717 billion in 2025 — yet distributions to limited partners ran at only about 14% of net asset value, the fourth consecutive year below 15% and the weakest stretch since the financial crisis. The cause is a backlog of:
- Roughly 32,000 unsold portfolio companies, worth an estimated USD 3.8 trillion
- Average holding periods stretching toward seven years
For general partners, easing this logjam — through sales, continuation vehicles or partial realisations — is now the precondition for the next fund-raise; Bain records global buyout fund-raising down 16% to USD 395 billion as LPs await returns of capital.
Sector selectivity remains pronounced. PitchBook data shows European industrials deal count up 12%, with continued strength in healthcare, financial and professional services, and energy-transition-linked assets such as testing, inspection and certification businesses. The premium for demonstrable, defensible growth has, if anything, widened.
Alpha is less likely to emerge from market dynamics alone. It will increasingly be made.
— McKinsey, Global Private Markets Report 2026
The advisory takeaway
McKinsey's point is pointed: returns now depend on operational improvement rather than multiple expansion or cheap debt. Bain's Hugh MacArthur strikes a more optimistic note, observing that with rates easing and pipelines well stocked, "conditions for deal and exit activity are rosier than for some time." For sponsors we advise, the priority is clear — convert paper gains into realised distributions while the deal environment cooperates.
Sources
Tim Guntermann
Founder & Managing Partner