Private equity has spent much of the past four years waiting for the exit window to reopen. The unfortunate twist is that, for much of the portfolio, it still has not. 

As of mid-2026, US PE firms were holding around 13,500 unsold portfolio companies. Q2 exit value fell 46 percent quarter-on-quarter to USD 102.6 billion, while the stock of ageing assets continued to build. At current exit rates, clearing the inventory could take close to a decade. Time, unfortunately, has yet to qualify as a value-creation strategy. 

The backlog is not evenly distributed. One of the most difficult pressure points is software, particularly older Software-as-a-Service (“SaaS”) businesses acquired at 2020–21 valuations. These companies are now contending with weaker public-market comparables and a business model being reshaped by AI.

That leaves software caught between cyclical and structural pressure. Financing costs and valuation gaps should ease as markets settle, but AI is unlikely to fade with the cycle. Generative and agentic tools are reshaping pricing, customer expectations and, in some cases, product economics. Waiting for rates to fall is one thing, but waiting for yesterday’s business model to return is rather less convincing.

As one leading industry source remarked, “Buying companies is not difficult ... finding the right businesses, creating value and exiting well are the real challenges.” In the current market, “there have not been many exits recently, which makes selectivity even more important.” 

Other sectors are proving more resilient. Healthcare and parts of industrials continue to benefit from relatively durable demand, while infrastructure, electrification and AI-related investment are creating pockets of acquisition appetite. Geography matters too, as noted by a private equity executive, “Deployment is easier in the US, in Europe they need to be ‘fairly creative’.” 

“Buying companies is not difficult ... finding the right businesses, creating value and exiting well are the real challenges.”

Leading industry expert, US

That creativity increasingly includes building around existing assets. “Transactions where the company can combine a new acquisition with an existing portfolio company are particularly attractive because they allow them to deploy capital meaningfully,” stated the executive. Bolt-ons can provide scale and synergies without requiring sponsors to underwrite another standalone platform at a full valuation. 

The Initial Public Offering (“IPO”) market shows the same divide. IPOs represented roughly a third of US PE exit proceeds in Q2 2026, up sharply from the previous quarter, yet only around 70 PE-backed US companies have listed since 2022, compared with more than 400 between 2017 and 2021. 

“Transactions where the company can combine a new acquisition with an existing portfolio company are particularly attractive because they allow them to deploy capital meaningfully.”

Private equity executive, US

The window is reopening, but the threshold has moved upwards. Today’s IPO candidate is more likely to be larger, later-stage and operationally proven, with durable growth, credible margins, stronger governance and sufficient scale to support institutional liquidity. There is no single minimum market capitalisation, but smaller PE-backed businesses that might have floated in the previous cycle now face a materially higher bar.

AI is increasingly part of that higher bar. A company does not need to be AI-native, but it does need a convincing explanation of how AI affects its moat, economics, cost base and growth. Particularly in software, investors want evidence that AI strengthens the business model rather than merely appearing in the presentation. “We have added a chatbot called Steve” is unlikely to constitute an equity story.

Exit preparation itself is becoming more demanding. “There is a great deal of preparation required around the transaction, including regulatory approvals, financing and managing multiple stakeholders,” clarfied the industry expert. For management teams, exit readiness increasingly begins well before the sale or IPO process formally starts. 

The consequences of delayed exits also extend beyond the assets waiting to be sold. PE depends on capital velocity: one sponsor’s exit often becomes another sponsor’s acquisition, while distributions from mature funds provide Limited Partners (“LPs”) with capital for new commitments. 

When exits slow, that chain slows with them. Lower distributions constrain fundraising and recycling capacity, while businesses that would normally return to market through sponsor-to-sponsor transactions remain inside existing portfolios. Prospective buyers therefore face a smaller pipeline of proven assets and may turn instead to bolt-ons, carve-outs and proprietary sourcing. 

Sponsors are adapting to the slower exit environment. Hold periods are being extended, assets recapitalised, minority stakes sold and continuation vehicles and GP-led secondaries used more frequently, allowing existing investors to take liquidity while sponsors retain ownership of the underlying asset. These are useful pressure valves. Patient capital has its virtues, but eventually a long hold risks becoming a long goodbye.