Private equity dealmaking is set to slow down significantly in 2026, as firms increasingly turn to a contentious strategy to hold assets for longer and navigate growing investor caution around artificial intelligence (AI). This is the key prediction from legal experts at White & Case, who also highlight the immense pressure to deploy a staggering £893tn in uninvested capital, known as 'dry powder'.
Continuation Vehicles and the Slower Deal Cycle
Partners at the international law firm White & Case anticipate that general partners will hold onto a large number of assets they originally planned to sell by 2026. The method enabling this is the increased use of continuation vehicles.
This tactic involves selling assets already owned by a private equity group to a newer fund managed by the same firm. While it allows PE firms to return cash to investors in older funds and preserve asset value, it has sparked concerns over potential conflicts of interest.
The consequence, according to Ken Barry, partner and head of Europe private equity at White & Case, is a more protracted process. "Transactions are getting done, but they’re taking longer and require greater conviction," he stated. Deals will face longer negotiation cycles and heightened regulatory scrutiny. Sectors like industrials, healthcare, and defence are expected to remain the most active, with more transactions likely to involve strategic buyers rather than financial sponsors.
AI Wariness and Fund Consolidation
While AI dominates public market discussions, limited partners (LPs)—the investors in private equity funds—are adopting a more cautious stance for 2026. There is a growing private sector concern that AI, once seen as a pure investment catalyst, could dramatically disrupt established business models.
This caution is influencing capital deployment. LPs are becoming more selective, favouring larger general partners with proven track records over smaller, specialised firms struggling in a tough economic climate. Emily Brown, partner and co-head of White & Case's global private capital industry group, notes this dynamic could "accelerate consolidation among smaller buyout firms" as they strive to meet investor demands.
Public-to-Private Deals to Persist
The trend of taking public companies private, a staple of 2025, is forecast to continue this year. This is driven by the vast reservoir of dry powder—estimated at $1.2tn (£893tn)—and pressure from LPs to generate returns.
Falling interest rates, with the Bank of England and the US Federal Reserve predicted to cut in 2026, will make borrowing easier and further support this activity. A prominent example from 2025 was the acquisition of FTSE-listed Spectris by private equity giant KKR for £4.7bn.
Emily Brown suggests a positive cycle may emerge: "Improving liquidity as more exits come through should support a more constructive fundraising environment in 2026. As LPs begin to see capital returned, we expect appetite to increase." This appetite will span primary fund commitments and the expanding secondaries and continuation vehicle markets.
