Private Equity May See a Wait On Merger Hopes

BY CHRIS CUMMING

The private-equity landscape is littered with struggling firms seeking a shot of fresh capital from their bigger, more successful peers. But the long-awaited consolidation wave is unlikely to arrive this year, many people who work in the industry say.

The pace of mergers and acquisitions among private-equity firms is rising, but structural challenges in combining buyout shops and scant demand for distressed firms still make them relatively rare, according to these people. Instead, struggling firms will likely limp along for another year in 2026, hoping to be bailed out by a market turnaround, rather than by a larger acquirer, say people who work in private equity.

“We’ll see more deals, but not a tsunami” of mergers between private-equity firms in 2026, said Hugh MacArthur, chairman of the private-equity practice at Bain & Co.

The pressures of the current private-equity downturn have led more firms—particularly those whose fundraising prospects now appear dim—to explore tie-ups, MacArthur added.

“It’s more competitive out there. There aren’t enough fund dollars around, not enough talent, not enough deals,” he said.

But M&A between privateequity firms “is still really difficult. Firms have a lot of hidden complexity when you look under the hood,” MacArthur said.

He thinks underperforming firms are more likely to try to resolve their problems by selling assets on the secondary market than through the much more complicated process of selling the whole firm.

Since the private-equity slump began in 2022, many industry observers have thought it would inevitably spur a wave of consolidation as the haves absorb the have-nots.

The downturn has exacerbated the gap between the

two groups. The performance of the best and worst funds has diverged in recent years, with the top-quartile funds in the most recent vintages averaging about a 20% net internal rate of return, and the bottom quartile near zero, according to a December report from data-tracking firm Preqin.

This performance gap is widening the fundraising gap between the biggest firms and everybody else.

Over 60% of the private-equity money raised in 2025 went to firms with 10 or more funds, and the 10 largest funds accounted for about 46% of the total money raised, datatracking firm PitchBook said.

The expansion of the retailfundraising channel—which generally only the largest firms can access—is expected to accelerate this trend.

Strategic M&A among alternatives firms is currently at record-high levels, with 67 deals in 2024 and 41 through the first six months of 2025, Bain’s data shows. Many of the deals currently closing involve firms with successful fundraising records.

But a few dozen deals a year is a drop in the bucket in an industry with some 15,000 firms, per Bain’s data. The puzzle remains the slow pace of consolidation—even in a downturn—in an industry with so many firms and such significant scale advantages.

One major reason for the rarity of private-equity mergers is that the most active buyers tend to be large, publicly traded managers.

These companies can issue stock to make acquisitions, while most private-equity firms are structured as partnerships and don’t have their own currencies to do deals. Publicly traded managers have accounted for 84% of the acquisitions since 2012, according to Bain.

Large public firms typically make acquisitions to expand either into a new strategy, as in Investcorp’s 2023 acquisition of a 50% stake in Corsair Capital’s infrastructure business, or a new geography, as in European buyout shop EQT’s 2022 merger with Hong Kong-based Baring Private Equity Asia.

Large traditional asset managers have also been significant buyers of alternatives firms, in deals such as BlackRock’s acquisition last year of private-credit manager HPS Investment Partners. In late December, Soft-Bank Group announced plans to buy DigitalBridge Group at a $4 billion valuation in a deal in-tended to expand the Japanese conglomerate’s digital-infrastructure business.

Though less common, deals by non-publicly-traded firms do also take place, such as Ardian’s acquisition of Seven Mile Capital Partners, a 2016 deal that gave the Paris-based manager a foothold in North America.

For those firms still stuck in M&A limbo, many industry experts say the plan for 2026 will remain what it has been for several years: Keep holding on.

Historically, private-equity firms have been able to survive for many years even after taking a severe financial hit. For example, the two most famous private-equity casualties of the dot-com crash of the early 2000s—Hicks, Muse, Tate & Furst and Forstmann, Little & Co.—both struggled on for more than a decade, into the 2010s.

Now, with the proliferation of new ways to prolong asset ownership such as continuation funds and net-asset-value loans, struggling firms may have an even longer runway.

Alternative asset managers “are hard to start, but also pretty hard to unwind,” said Jeff Parks, co-founder and managing partner of technology-focused firm Riverwood Capital.

That means the resolution of the industry’s poor performers is not going to be accomplished in a year, but will likely take much longer, Parks added.

Private equity “is not the kind of industry where you’re going to have a shakeout in a year,” he said. Chris Cumming writes for WSJ Pro Private Equity.