PE cools on megadeals amidst trio of market headwinds

Private equity was still doing deals in Q2, but firms stayed away from larger transactions amidst some market headwinds, including (especially!) risky AI bets.

That’s according to Cherry Bekaert’s midyear report on US PE dealmaking, which showed deal count grew 11.5% YoY in the second quarter, to 2,384, while aggregate deal value dropped to $177.3 billion from $233 billion in Q2 2025. Sponsors deployed about $461 billion in H1, the report noted.

Behind the fall in deal value were “three shocks,” according to Cherry Bekaert, which include the Federal Reserve keeping rates “higher for longer,” “energy-driven inflation” from the war in Iran, and AI-related risks. “The combined effect of these forces is evident in the size of deals, not deal count,” the CPA firm noted.

“Sponsors retreated from the large, financing-dependent transactions that move the value needle, even as smaller deals kept closing at a steady pace,” the report said.

Scott Moss, a partner and transaction advisory leader at Cherry Bekaert, told CFO Brew, “the focus on middle-market transactions is not something unusual…and probably something that would be expected given the current state of the environment.”

Energy spark. Underwriters are contending with “a newer complication” from AI, according to the report. The disruptive technology makes it harder to determine a company’s value when its “competitive position may be rewritten well inside a standard hold period.”

Moss said AI is “probably going to impact every single industry that’s out there, some more than others.” What dealmakers don’t know, however, is the technology’s “ultimate impact two to three years from now” on businesses.

AI’s impact could be seen in specific sectors. Deal value in software, “the sector that anchored PE returns for a decade,” declined 65.7% YoY in Q2 and 90.3% from its peak three quarters ago, according to the report. Meanwhile, energy-sector deal value increased 80.5% YoY in the first six months of 2026, which “reflects structural demand” amid an AI infrastructure arms race between hyperscalers like Amazon and Microsoft.

Zoom out. Cherry Bekaert’s assessment on AI risk in PE dealmaking echoes what experts have observed across the M&A landscape.

“Dealmakers are increasingly incorporating AI exposure assessment into standard diligence practice, recognizing that pricing confidence now depends not only on financial performance, but on structural defensibility,” KPMG noted in its 2026 Global M&A Outlook.

Meanwhile, Bain noted in its late June M&A Midyear Outlook that “the AI overlay may be making it one of the most difficult times ever to get large, complicated transactions right, yet they represent the single biggest opportunity if you do get them right.”

“Every deal thesis should answer how AI will impact the target’s business model and enhance the combined entity,” according to the Bain report.