Despite expectations of a better year, 2025 was another spell of waiting for many in private equity. A 105% increase in dealmaking in Q3 vs. Q2 showed top quality assets continued to sell. But slow growth and valuation challenges meant investors were still holding onto ‘B grade’ assets, and this bottleneck impacted the whole market. Patience has been required from LPs looking for liquidity, and GPs eager to start raising their next funds.

But, as always, the New Year provides a chance to reset and hope of a resurgence in the next 12 months. Will that happen? Here are my predictions for what 2026 will bring in the European private equity space.

Crunch time for exits

Whatever happens with the economy, many investors are reaching a point where they can’t hold on to certain assets much longer, and liquidity demands will start to win out. There is still plenty of dry powder, which LPs are keen to see put to work and as pricing flexibility increases, the convergence of the two should give a much-needed push to exits and dealmaking – although IPOs are likely to remain slow for a while longer. Any pick-up in the economy would provide an added spark to boost valuations and get the market moving.

Out of the sandbox: The year of B2B and vertical AI

While consumer-facing AI products have raced ahead, specialist B2B and vertical solutions have, as ever, taken longer to get off the ground. Throughout 2024 and 2025, developers moved from experimentation through to prototyping and testing. Now, 2026 looks to be when these solutions will move out of the sandbox into real life.

We’re seeing this in our own portfolio, as both Relesys, the frontline retail app, and PriceShape, which provides real-time retail pricing data, have AI driven products in beta with major customers.

What makes these products different is that they’re not developed by native AI businesses, but by B2B and vertical SaaS specialists. With deep knowledge of their customers, they’re leveraging AI to enhance their current offerings, based on real customer demand, mixing and matching from the best technologies available.

This differentiation is one of the key reasons why the impact of AI will accelerate in 2026, as it moves from novelty and employee-led, to enhancing company operations at a strategic level.

AI hackers on the attack

AI is also shaping the world of cyber security, particularly since Anthropic announced in August that its technology had been "weaponised" by cyber criminals. This will be a growing theme of 2026, with AI companies ramping up investment to get ahead of the hackers.

Companies across the board will also begin to crack down on how employees are using AI tools, as research by Harmonic Security found that 22% of files and 4.37% of prompts currently include sensitive data. The impact of this for security and privacy is a serious concern for CTOs, which brings opportunities for businesses that can help them combat the threat, through training and security solutions. SecureFlag, a secure coding training platform, has just launched a new programme on managing employees and AI, for exactly this reason.

Digitisation bricks and mortar retail

It’s not long since the death of bricks and mortar retail seemed inevitable, but the high street continues to deliver value, for shoppers and retailers. The decline of physical shops has plateaued as retailers have struck a balance between online and offline, and customers have recognised the benefits of a combination of both.

What has changed is that businesses committed to bricks and mortar are looking to invest in technology to make their offering as successful and profitable as possible, rather than worrying purely about survival. This brings opportunities for SaaS, with high street retail one of the largest sectors of the economy where digital services remain relatively unexplored.

Companies like Relesys enable retailers to engage frontline workers with AI-enabled tools that combine communication, training and operations, helping to boost retention, performance, and ultimately customer service. PriceShape is another example, which gives retailers access to competitor prices, stock status, and delivery costs, to make informed decisions and adjust pricing strategies in real time.

These businesses – and others like them - will become ubiquitous on the high street in the coming year.

A pop of the AI bubble

The AI boom has created some fantastic businesses, but the levels of investment have been insane and fundraising too easy, given too many companies have been competing for the same pie. As a result, the AI bubble will burst, or at least lose its shine in H2 of 2026, with falling stock prices, slower investment and a shakeout of companies.

Ultimately, competing with Google’s AI-first strategy, and level of investment, has been and is going to remain extremely difficult for AI native companies, so some will inevitably fall by the wayside. This is another reason why the opportunity is there for B2B and vertical specialists, which aren’t competing directly with the generic providers but rather building the applications on top of their infrastructure layer.

Emerging managers vs. the zombies

Exit challenges mean zombie funds are everywhere, reaching an all-time-high AUM of $824 billion in 2024 and expected to reach $1 trillion by 2030.

But rather than an existential crisis, this is driving a shift in power in private equity, away from the large funds towards emerging managers. Despite 2025 fundraising the lowest in several years, emerging firms such as Goldenpeak (kudos Mark Williams and Leon Gillespie), which closed its debut fund of £375m in just over 12 weeks, and Kester (kudos Adam Maidment and Cameron Crockett), whose fourth fund reached  £425m in only slightly longer, have been flying. There are sure to be more of these in 2026, as talented investors at the larger, top-heavy firms seek an alternative career path.

Disillusioned by the long road to partner, this new generation is ambitious, driven to do deals, and focused on building businesses suited to success in the current market. Operator first, they’re creating value through operational transformation and growth opportunities, not financial engineering. LPs, management teams and talented investors are jumping onboard.

Professional CEOs vs founders

Higher prices, more competitive deals, tougher value creation. The push for performance is driving investors to hold management teams to account more. One upshot of this will be faster turnover of founders in favour of professional CEOs.

There’s no doubt that top founders bring vision and cultural DNA which are vital to early business growth. But once a business reaches between 150 and 200 employees, the demands on leaders start to shift dramatically.

It becomes a professional management job, with performance reviews and the drive for standards eclipsing the sales and product side. For many founders that isn’t their skillset, or what they enjoy, so it is vital to talk honestly about what makes sense for both sides.

This is nothing new, but we’ll start to see the timing of these conversations move much earlier, as leadership becomes an even greater differentiator in the quest for growth and a successful exit.

Growth, growth, growth

If I was to leave you with one message for 2026, it is one of growth. Reaching critical KPIs has undoubtedly been harder in the last couple of years and investors and businesses are determined to change that in the next 12 months. That will mean investment in innovation, expansion, and building out sales teams as businesses look to capitalise on any market shift. Once things do open up – which they always do eventually – those with the right foundations combined with healthy organic growth will be ready to capitalise.

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