Private Equity Mid‑Year Review: Selective Capital, Resilient M&A & Europe's Surprise Comeback | 0100 Weekly Brief
Hello there!
The first half of 2026 has reinforced a trend that has been building for several quarters: private equity isn’t slowing down; it is becoming far more selective.
While overall deal volumes have softened, capital continues to flow toward businesses with stronger strategic rationale, resilient business models, and long-term growth potential. Artificial intelligence is reshaping how sponsors underwrite technology investments, energy security has emerged as a major investment priority, and Europe has surprised many by outperforming expectations despite ongoing macroeconomic uncertainty.
At the same time, the broader M&A market tells a similar story. Investors are completing fewer transactions, but they are deploying larger amounts of capital into high-conviction opportunities, reflecting a growing focus on quality over quantity.
This week, we’re bringing together the latest insights from EY, KPMG, PitchBook, and our own European M&A analysis to explore how private equity and strategic buyers navigated the first half of the year, and what these trends suggest for the months ahead.
And if you missed it, last week's newsletter explored the venture capital landscape through the first half of 2026. Together, the two briefings provide a broader view of how capital is being deployed across the private markets ecosystem
Capital Deployment Becomes Selective Everywhere
While overall deal activity moderated during H1 2026, the slowdown reflected greater selectivity rather than a withdrawal from the market. EY reports that global private equity acquisitions declined by approximately 10% compared with the first half of 2025, yet aggregate deal value remained broadly unchanged.
The decline was concentrated in technology transactions, while investment across all other sectors increased by 9%, demonstrating that sponsors continued deploying capital where conviction remained high. Investment committees placed greater emphasis on underwriting certainty, durable earnings, and downside protection rather than pursuing growth at any price.
This trend also reflects a more expansive reallocation of capital toward sectors viewed as more resilient in an uncertain macroeconomic environment. Rather than concentrating exposure in traditional high-growth technology investments, private equity firms are increasingly targeting industries supported by long-term structural demand, essential services, and infrastructure.
Beyond these two leading sectors, sponsors are also directing capital toward energy infrastructure, aerospace and defense, and software businesses with AI-enabled capabilities, each selected by 28% of respondents. Industrials and advanced manufacturing (24%) also remain attractive as companies continue to invest in supply chain resilience, reshoring, and automation.
AI Influences Investment Priorities
Artificial intelligence became one of the defining themes influencing private equity investment decisions during the first half of the year. Rather than driving increased software investment, AI caused many sponsors to reassess technology valuations and future competitive dynamics.
EY and KPMG note that investors became cautious toward traditional software businesses, reflecting uncertainty around long-term pricing power and business model disruption. Instead, investment moved toward the infrastructure supporting AI adoption, including data centers, cloud infrastructure, power generation, grid modernization, semiconductor supply chains, and digital connectivity.
Energy Security Is on Everyone’s Table
Geopolitical developments significantly influenced capital allocation during H1 2026. KPMG highlights that conflict in the Middle East and disruptions to global energy markets reinforced investor interest in energy infrastructure and natural resources.
The sector attracted approximately $149 billion of global private equity investment during the first half of the year and was identified as one of the strongest-performing investment themes globally. Beyond conventional energy, investors also increased allocations toward electricity generation, transmission infrastructure, and assets supporting the rapid expansion of AI-related power demand.
European Market Outperforms Many Expectations
Despite persistent geopolitical uncertainty, inflationary pressures, and the European Central Bank's decision to raise interest rates by 25 basis points in June, the first increase since 2023, deal activity remained resilient.
According to PitchBook, deal value increased by 6.9% quarter-over-quarter during Q2, while deal count remained broadly stable, putting the market on track for one of its strongest years on record by transaction volume and only modestly below the all-time peak in deal value. Rather than stalling investment, sponsors continued to deploy capital selectively into assets offering attractive operational value creation opportunities.
Europe's relative strength became even more apparent when compared with the United States. While European deal value increased during Q2, US private equity deal value declined over the same period.
According to the same report by Pitchbook, Europe has steadily gained market share over the past year, narrowing the historical gap between the two regions. Whereas the US market generated approximately 57% more deal value than Europe in 2025, that difference narrowed significantly during H1 2026 to around 35%.
European M&A Has Remarkable Resilience
During Q2 2026 alone, announced European M&A activity reached €262.5 billion across 3,315 transactions, highlighting the continued willingness of both corporate and financial buyers to pursue high-quality assets with strong long-term growth prospects.
This divergence between transaction value and deal volume suggests that investors are prioritizing quality over quantity, focusing on businesses with resilient earnings, strategic importance, and clear operational value creation opportunities.
M&A activity continued to be dominated by Europe’s largest economies. The United Kingdom remained the region’s most active market, generating €76.7 billion in announced transaction value across 523 deals, followed by Germany with €60.6 billion and Italy with €40.3 billion. Collectively, these three markets accounted for more than two-thirds of total announced deal value during the quarter, reflecting continued investor preference for mature markets offering scale, liquidity and attractive strategic acquisition opportunities.
While France, Ireland and Sweden also recorded notable activity, deal values became increasingly concentrated in a relatively small number of large-cap acquisitions. Ireland stood out for the size rather than the volume of its transactions, reflecting several significant cross-border deals despite recording only 66 announced transactions.
Overall, the geographic distribution of capital illustrates that investors continue to prioritize markets offering stable regulatory environments, deep capital markets and attractive strategic assets rather than pursuing broad-based expansion across Europe.
Let’s Continue the Conversation at 0100 Emerging Europe!
If you'd like to dive deeper into these themes and trends influencing private markets, join us at 0100 Emerging Europe this October, in beautiful Budapest. We’ll have a dedicated discussion on where capital is going next.
The session will explore how LP strategies are evolving across Central and Eastern Europe and the broader European ecosystem, where capital is flowing today, and which structural trends are shaping investment decisions for the years ahead.
The discussion will feature Pavel Dvorak, Associate Director of Venture Capital Funds at the European Bank for Reconstruction and Development (EBRD), and Philipp von dem Knesebeck, Member of the Investment Committee at K5 Family Office and former Chief Investment Officer of Blue Future Partners.