Private equity deals drop as AI and Iran war tensions bite

Private equity groups agreed buyouts worth $172bn in the first quarter of the year

The value of acquisitions by private equity firms declined by more than a third during the opening quarter of the year, with dealmakers cautioning that apprehensions over AI’s influence on software companies and the continuing Middle Eastern conflict could accelerate the slowdown.

During the three months to March, private equity firms completed transactions worth $172bn (£129.8bn), representing a 36 per cent fall from the previous quarter according to Dealogic.

It also marked an eight per cent decline from the corresponding period in the prior year.

Buyout professionals and advisers attributed the reduction to firms postponing deal signings amid the persistent market volatility triggered by the Middle Eastern conflict.

Meanwhile, mounting concerns about AI’s implications for software groups have also dampened expectations that private equity is rebounding following its extended downturn, as reported by City AM.

Software, amongst the buyout sector’s more lucrative areas, has encountered investor exodus in response to swift AI advancement, which has compressed returns.

Attitudes towards software have also deteriorated within the private credit sector, amid increasing investor worries that the software and technology businesses comprising a substantial proportion of the industry’s lending portfolios were particularly susceptible to being supplanted or disrupted by AI.

Speaking to the Financial Times, the head of a large European buyout group, said: “We’re in one of the most turbulent periods that I can remember.

“Things are grinding down quite quickly now in terms of activity.”

The executive cautioned that the most severe economic consequences of the conflict have yet to materialise, while the potential disruption to software firms’ business models could have an even greater bearing on dealmaking over the coming months.

Within the private credit sector, investors have retreated towards the security of liquid assets, such as equities and bonds, while others have sought refuge in cash and money market funds.

The substantial quarter-on-quarter decline in the value of buyout deals follows a resurgence in the second half of last year, with global deal value climbing to over $900bn in 2025, propelled by a handful of megadeals.

These included the $23.7bn acquisition of Walgreens Boots Alliance, spearheaded by Sycamore Partners, while Aligned Data Centres was acquired by a consortium of investors for approximately $40bn.

However, the early-year rebound from a period of volatility was abruptly halted by the conflict, also extinguishing the optimism the industry had harboured regarding the state of private equity in 2026.

The value of global private equity exits in the first three months likewise fell to $162bn, representing a decline of one-third from the preceding quarter.

This also dragged the value of global private equity exits back to levels comparable with the same period the previous year.

Certain funds are hesitant to reduce the valuations of their portfolio companies, many of which were acquired during the peak valuation surge between 2020 and 2021, while some institutional investors have grown wary of the market due to its underperformance compared to public markets, which have benefited from strong-performing AI stocks.