Private equity enters 2026 with a materially different posture than it carried into the start of 2025. After a year defined by heightened uncertainty, from interest rates and inflation to tariffs, labor-market disruption, and constrained exits, expectations have reset. 

Rather than waiting for clarity, firms are increasingly operating within a known, if imperfect, set of conditions. Valuation gaps are narrowing, deal activity is recovering modestly, and momentum is building unevenly across sectors. David Morris, who works extensively with PE sponsors across transactions and integrations, described today’s market as one shaped by “the certainty of uncertainty.” 

At the same time, activity remains measured. Jeremy Swan, who advises financial sponsors on growth strategies and market conditions, characterized current conditions as “more than a trickle, less than a flood,” with a sufficient pipeline to support disciplined deployment into the first half of 2026.

Against this backdrop, attention has shifted away from predicting a broad market reset and toward execution: deploying capital selectively, driving operational value, and positioning portfolios to perform across a range of economic outcomes.

Here, we collected what we’ve seen across the market to explore how sponsors are approaching 2026 – and the specific action items and considerations to keep in mind as you move into the new year.

Plus: Skip to the end of this page for data comparing 2024 and 2025 transactions.

AI and value creation: Acceleration without replacement

Artificial intelligence has become one of the most visible forces shaping private equity strategy, though its near-term impact is largely pragmatic rather than transformational. Across the market, AI is being applied as an acceleration tool: improving diligence speed, sharpening deal screening, and supporting productivity. Firms are prioritizing targeted applications that remove friction from time-intensive processes, such as automating document review, standardizing analysis across opportunities, and improving pattern recognition earlier in the deal funnel. The emphasis so far is on speed and consistency, not wholesale change.

AI is also beginning to influence risk selection. Vikram Devanga, who focuses on transaction advisory and diligence for PE investors, has seen sponsors apply internal models trained on historical transaction data to assess how new opportunities align with prior successes and failures. Used effectively, these tools can strengthen screening discipline – though human oversight must be preserved in investment decisions. “You can start filtering opportunities against what’s worked and what hasn’t, without taking judgment out of the process,” Devanga said.

As these opportunities to harness AI take shape, adoption remains uneven, particularly in the middle market. Many portfolio companies are still working through foundational challenges related to data quality, governance, and practical use cases. “Everybody’s curious, but there are few best practices,” Morris said.

The firms that gain advantage in 2026 will be those that move beyond experimentation and embed AI into repeatable workflows that improve speed, sharpen judgment, and scale effectively across the investment lifecycle. In certain sectors, particularly professional services and other labor-intensive businesses, the opportunity lies less in immediate cost reduction and more in building operating models that compound benefits over time, often over a three- to five-year horizon.

The priority is implementing with intention: committing early enough to influence transformation, while maintaining clear-eyed realism in underwriting timelines, investment requirements, and organizational implications.

Interest rates and capital deployment: Stability enables selectivity

Interest rates were a defining headwind for private equity in 2025, contributing to slower fundraising, delayed exits, and heightened underwriting discipline. While rates remain elevated relative to prior cycles, recent easing has introduced greater market predictability.

With that predictability, deal activity is improving, with both sell- and buy-side processes gaining traction. While this does not signal a return to prior-cycle volume, it reflects growing confidence in underwriting assumptions and capital structures.

Fundraising conditions remain uneven, but modest improvements in exit activity are beginning to ease pressure at the margin. Morris acknowledged that the industry has anticipated this inflection point for several years: “We thought it was going to be ’24. We thought it was going to be ’25. Hopefully ’26 is the year.”

Still, even incremental rate stability can materially improve sentiment, underwriting confidence, and deal economics. While a return to ultra-cheap leverage is unlikely, greater predictability supports more constructive conversations around valuation, structure, and risk-sharing. At the same time, fundraising momentum remains closely tied to exits, reinforcing the need for selectivity and discipline in capital deployment.

Consumer spending: Manageable stress, material downside risk

Morris described the consumer as “the biggest wild card going into ’26,” pointing to elevated household debt and labor-market disruption as critical variables. He also highlighted potential downstream effects of AI-driven displacement among junior and analytical roles, which could influence employment dynamics, consumer confidence, and spending behavior over time.

B2B companies may avoid immediate disruption, but reduced demand, tightening credit conditions, and downstream pressure can surface quickly if consumer weakness deepens. “Consumer spending doesn’t hurt non-consumer businesses until it does,” Swan noted: Even when investments are not directly consumer-facing, shifts in employment, confidence, and household balance sheets tend to ripple through the economy, often gradually at first, but with meaningful impact once they take hold.

Consumer-driven uncertainty overall shapes deal selection, portfolio resilience, and exit timing. While moderate stress may be manageable, broader consumer distress could tighten financing conditions and pressure valuations across sectors. Assessing consumer exposure, therefore, requires a spectrum-based approach supported by scenario planning and stress testing.

Tariffs and supply chains: Quieter headlines, persistent execution costs

Tariffs have receded from daily headlines, but remain a meaningful diligence and execution consideration. Many companies have already taken steps to mitigate exposure, often through partial supply-chain rerouting rather than full reshoring.

These adjustments, however, require time and capital. Devanga explains, “You can’t change this in a couple of months” – a reality that has led many management teams to proceed cautiously as they evaluate the durability of current trade policies.

Tariff exposure increasingly influences deal selection. In some cases, sponsors are avoiding highly exposed assets altogether. While less visible than earlier in 2025, misjudging tariff exposure can still carry significant execution risk. Dealmakers must consider whether portfolio companies have credible, funded plans to manage that exposure effectively.

Rollup strategies: Proven playbooks, new sectors

While many traditional rollup targets, particularly in HVAC and industrial services, have become increasingly saturated, rollups remain a “tried-and-true concept,” Swan said, that continues to be applied to new industries in phases rather than abandoned altogether. 

Sponsors are now looking to pursue less crowded verticals where fragmentation and operational leverage remain attractive. Activity has expanded into service-oriented and labor-driven businesses, including pool services, precision manufacturing, and technical education. Workforce training platforms are also attracting interest as firms position for structural changes in labor demand driven by automation and AI adoption. 

While rollups can drive scalable growth, execution risk remains elevated. Longer deal timelines, integration complexity, and operational discipline play a growing role in outcomes.

Government-adjacent assets and compliance: CMMC as a value consideration

For companies with Department of Defense exposure, cybersecurity compliance is becoming a more prominent diligence factor. Cybersecurity Maturity Model Certification (CMMC) has introduced tiered requirements that can materially affect transaction timing, costs, and post-close investment needs.

CMMC compliance can represent both risk and opportunity: Firms that understand the investment required to achieve compliance are better positioned to protect value and support growth in government-adjacent markets.

Looking ahead: Execution as the differentiator

As 2026 begins, the private equity environment remains complex, but it is more navigable than it was a year ago. With uncertainty now a standing condition, success will hinge on disciplined execution and the capacity to adapt as markets continue to evolve.

2025 vs. 2024 comparison table

Data from Pitchbook, U.S. private equity deals completed through December 31, 2025.