The Iran conflict is putting pressure on private equity, with sponsor-to-sponsor transactions dominating activity
European private equity appears to have entered 2026 with momentum intact, with deal value supported by a pipeline of large transactions and exit value holding up year-on-year.
Look closer, however, and the picture is less reassuring. Exit count fell 31.3% quarter-on-quarter, the IPO window remains effectively closed, and sponsor-to-sponsor transactions accounted for 76.1% of total exit value, up from 49.6% in 2025, according to Pitchbook.
Fundraising has also slowed sharply, with just €18 billion raised across 23 funds in Q1. The market continues to function – but increasingly within a narrower base of participants.
The immediate explanation for the slowdown is geopolitical. The data provider attributes the disruption principally to the Iran conflict, which has weighed on all markets and introduced fresh uncertainty into dealmaking. Deal value fell 22.5% quarter-on-quarter, while deal count declined 12.4%.
Yet even here, the picture is ambiguous. “We cannot be certain… Q1 is genuinely difficult to read,” says Nicolas Moura, senior EMEA private capital analyst at PitchBook.
On one hand, the closing of several megadeals suggests that momentum from late 2025 persisted into the new year. On the other, the sharp rise in add-on acquisitions and collaborative ‘club deals’ points to a more cautious stance among sponsors.
Hear how institutional investors are allocating at our Private Credit Forum.
The tension is most visible in exits. While aggregate exit value declined only modestly, activity has become increasingly concentrated, with fewer deals and a heavier reliance on large transactions. Traditional exit routes remain constrained, IPO markets are largely shut and corporate buyers have stepped back.
“Yes and no,” says Moura when asked whether this dynamic masks a deeper freeze in exit markets. “It doesn’t follow that sponsors would have pursued the IPO route. There is a growing conviction among investors that companies are simply better off staying private.
“I don’t believe there is a hard limit to how long assets can remain private. As public markets shrink, private markets will mature and develop their own liquidity mechanisms,” he adds.
“That said, playing devil’s advocate, distributions as a percentage of NAV are at historic lows – below 20% in Europe against a 10-year average of 28%. [But] I don’t find that alarming – it is largely a reflection of the abnormally high fundraising volumes we saw from 2020 onwards as the asset class expanded rapidly.”
Even so, it points to a system in which liquidity is being sustained internally within a limited range of participants rather than validated externally.
The potential for renewed inflationary pressure also adds to the uncertainty. “Valuations are highly sensitive to the macro backdrop… a brief pause would not surprise me,” Moura says. “[It] could temporarily freeze dealmaking and put downward pressure on valuations if inflation resurfaces and central banks are forced to reverse course.”
Institutional Investment Conferences & Summits from Longview Networks
Sponsors, for their part, are already adapting. Add-on acquisitions reached a decade high of 71.4% of buyouts in Q1, while club deals “surged” to 43.3% of total deal value. Rather than pursuing new platform investments, firms are focusing on consolidating existing assets and sharing risk across syndicates.
Fundraising tells a similar story. The overall environment remains subdued, constrained by weak distributions and the denominator effect. Capital has not disappeared but it is becoming more selective, with mid-market strategies continuing to attract the bulk of commitments.
Taken together, the data points to a market that is still operating, but under increasing constraints. Private equity is still deploying capital, executing exits and raising funds – but in a way that relies more heavily on internal dynamics and less on external validation.
Q1 may come to be seen as a meaningful inflection point – but if macro conditions stabilise and the Iranian conflict are resolved it may be no more than a temporary interruption. Adds Moura: “If the conflict stabilises quickly, Q1 may prove to be no more than a blip in the data.”