PE Pulse: key takeaways from Q1 2026

Speaker A: The global PE Pulse Podcast from ey.

Speaker B: Hi everyone, and welcome to the April edition of the PE Pulse Podcast. We'll give you a rundown of some of the important themes and trends that we're seeing in a private equity space and give you some views on how today's macro and geopolitical environment is impacting private equity. And specifically, we'll talk through today's deal environment, last quarter's themes and areas of focus, as well as our outlook for the next few months. My name is Pete Witte and I'm part of the Private Equity Group here at ey. Thanks so much as always for joining and let's get right into it.

Speaker A: This quarter's deals environment, acquisitions, exits and M financing.

Speaker B: So let's start by talking about the deal environment, because we came into this year with some pretty strong momentum and over the last couple of months we've seen a distinct shift toward a more selective environment. And that's really being driven by a couple things in particular. The first is that we have this new exogenous shock that's been introduced into the global markets. And in a lot of ways that's not totally dissimilar to what we saw a year ago when tariffs were introduced, insofar as there's impacts on input costs, supply chains, and all the second order effects that follow on from that. And that of course has an effect on deal activity. And the second is the software trade. And we'll dive deeper here in just a minute. But you know, this is really the more impactful of the two where PE is concerned, where in the US the software indices are down, call it 25%, 30% from their highs last October, as these frontier models get a lot more sophisticated and folks sort of step back to assess their impact on the business model, uh, of some of these companies. And then we have a measure of selectivity as well in the leveraged finance markets, where wider spreads, softer retail demand and a greater premium for higher quality credits is leading to a more disciplined underwriting environment, even though capital does remain available for well structured deals. But the net impact of all of this is some degree of moderation in activity. Over the last few weeks, in particular, in Q1, we saw firms announce 110 deals valued, uh, at just over $170 billion. That's a 12% decline by value versus the first quarter of last year. It's a 36% decline from the fourth quarter of last year. And one of the things that's really interesting here is that tech usually accounts for about a third of PE activity by value. Last year it was about 30% all in. However, that fell to just over 10% in the first quarter. So a really steep drop off in those tech deals. And in fact, if we hadn't seen that drop off, deals would have been up 12% last quarter instead of down 12%. So it really just kind of underscores the degree to which some of the softness in Q1 that we're seeing right now is being driven in particular by the hesitation in software, this quarter's key

Speaker A: market themes and fund priorities.

Speaker B: So how are folks responding to some of that disruption in the software space? Well, first and foremost, they're becoming a little more discriminating. We're seeing high quality or protected assets continuing to go for top dollar, but overall just more selectivity. In our quarterly survey of GPs, 64% of the firms that we talked to said that they were becoming more selective in terms of where they allocate capital. Relatedly, they're also increasing their diligence on AI disruption risk. 60% of the firms that we talked to said that they were doing this. And so the bar for these deals in investment committee has just gotten higher. Now what does that look like in practice? Well, it means having a deep understanding of the sources of competitive differentiation for these companies that you're looking at. How wide is the moat, how deep is emote? Whether that's data, uh, distribution, brand, customer trust, Right. Software companies can't just be viewed as a pure code provider. And so firms with the right expertise who have that ability to separate the winners from the losers, they're actually leaning in on some of these deals. 44% of the GPS that we talk to say that they're prioritizing investments in AI native or AI enabled software. And so key, uh, takeaway, the opportunity set hasn't gone away, but it is rapidly changing now. One of the other things that they're doing is rotating from asset light companies to harder assets, infrastructure, energy data centers. Last quarter, for example, we saw 13 deals announced in the utilities and energy space with a total value just under $70 billion. That's the most on record outlook for

Speaker A: the next six to 12 months.

Speaker B: So where does that leave us? Well, I think a lot of what we saw last year across the M and A markets was this theme M of transactors deciding that the risk of doing nothing outweighed the risk of doing something. And folks being very selective, very disciplined, but moving forward with deals despite the uncertainty. And that was something that we saw on both the corporate side and the private equity side. And so I suspect that as the market starts to absorb these new externalities and will continue to see PEs execute on their investment cases in a new normal or otherwise changed market environment. And I think that view is reinforced by what we're seeing at the portfolio level. I think anecdotally and just in conversations with gps, as well as in our survey data more broadly, there's this consistent message that fundamentally, the portfolios remain healthy. As part of the survey, for example, we asked folks to rate their base case outlook, uh, for the portfolio on a scale of 1 to 100, where 1 was significant deceleration, 50 was no change from the current levels, and so on across the group, they rated both earnings growth and top line at about a 50. So right where we are right now, at the same time, they did indicate some expectation of additional multiple contraction from where we are today. But taken together, what it points to is a market that remains fundamentally resilient even as it works through some of these exogenous shocks and a more complex and volatile backdrop. And so the right conditions for activity are still in place. But the market has to adjust to some of these new variables. And indeed, it's precisely these kinds of periods of elevated uncertainty where a lot of PE's core strengths, its role as an active and engaged manager, its alignment of interests across the enterprise, all of that comes to the forefront. As always, we'll continue to track how all this affects. But thanks for listening and we're looking forward to sharing more in our next update.

Speaker A: The global PE Pulse podcast from EY back next quarter. For more on the latest market Trends, go to ey.compePulse.