Private equity firms are still deploying capital while struggling to sell what they already own.
The exit market isn’t the real problem. Deployment pressure and exit pressure are running on two different clocks, and for lower-middle-market sponsors holding manufacturing, distribution, trucking, and construction businesses, the deeper issue is operational.
Portfolio companies aren’t buyer-ready. Fixing that doesn’t require waiting for the market. It requires running a tighter operating cadence from the day the deal closes: cash discipline, weekly accountability, margin control, and a measurable timeline to exit.
Why Can’t Private Equity Firms Sell Their Portfolio Companies Right Now?
Three forces are colliding in 2026, and they’re not going to resolve themselves anytime soon.
Start with the inventory. Bain & Company’s 2026 Global Private Equity Report estimates the industry is sitting on roughly 32,000 unsold companies worth $3.8 trillion. Average holding periods have stretched to about seven years, up from five to six during most of the prior decade. That’s a lot of capital locked inside aging assets. Bain & Company
Now look at what’s flowing back to LPs. Not much. Bain reports that distributions as a percentage of NAV have stayed below 15% for four straight years, which is an industry record. McKinsey’s 2026 Global Private Markets Report puts the most recent figure even lower: distributions to paid-in capital were 6% of total PE AUM in the 12 months ended June 2025, compared with a 16% average from 2015 to 2019. Bain & CompanyMemberclicks
The 2025 rebound looked encouraging on the surface, but it was narrower than the headline numbers suggested. Deal and exit values surged. Underneath that, though, overall deal count fell 6% year-over-year, and total exits dropped to 1,570, a 2% decline, with just seven mega-exits over $10 billion accounting for $155 billion of the $717 billion global exit value. The recovery favored gem assets at the top of the market. It didn’t reopen the broader exit channel. Bain & CompanyBain & Company
For a lower-middle-market sponsor sitting on a $40M EBITDA trucking platform with weak reporting, customer concentration, and stalled management, none of this is good news. A megadeal-led recovery doesn’t move your inventory.
Why Are PE Firms Still Buying When They Can’t Sell?
Because buying and selling are driven by different forces, and the clocks aren’t synchronized.
GPs still have capital to put to work. Bain reports global buyout dry powder at $1.3 trillion, with the majority raised in 2022–23 vintages, and McKinsey’s 2026 analysis estimates more than 40% of PE dry powder has been undeployed for two or more years. That’s deployment pressure on a fund-life clock. Invest the capital or watch fees, LP confidence, and fund pacing all start to deteriorate. Bain & CompanyChief Investment Officer
The exit clock runs differently. Funds raised five to seven years ago need to return capital. McKinsey reports that more than 16,000 companies globally have been held for more than four years, which represents 52% of total buyout-backed inventory and is the highest level on record. Memberclicks
So GPs keep transacting, just in smaller, more controllable ways. Add-on acquisitions accounted for 72.9% of all US buyouts in 2025, holding steady with the five-year average. Add-ons are smaller, more financeable through existing platforms, and easier to underwrite than new platforms. That’s why they keep happening even when exits are clogged. Cherry Bekaert
There’s nothing inherently wrong with that. An add-on that brings real capability, geography, customer access, or management depth can create genuine value. But an add-on layered onto a platform with weak management, poor cash flow, or unresolved execution issues doesn’t fix the underlying problem. It just spreads it across a bigger organization.
Scale doesn’t fix bad management. It amplifies it.
What Is The Real Reason Portfolio Companies Become Stranded Assets?
Most stranded assets aren’t stuck because of the market. They’re stuck because they aren’t ready to sell.
That doesn’t mean market conditions are irrelevant. Buyer pools have narrowed. Underwriting is more rigorous. Valuation gaps remain. IPO activity has been uneven. Private credit underwriting has tightened. All of that is real.
But the more honest diagnosis is operational. Walk through any portfolio of unsold lower-middle-market companies and you’ll usually find some combination of the same issues: weak management depth below the CEO, unreliable operating data, inconsistent KPI definitions, poor margin discipline, high SG&A with limited variable cost control, unclear debt service coverage, and no measurable initiative tracking that a buyer can validate.
In operationally intensive industries, those gaps aren’t theoretical. They show up in specific places. Scrap rates and equipment uptime in manufacturing. Route density and maintenance planning in trucking. Bid discipline and change-order capture in construction. Inventory turns, labor productivity, and working capital cycles across all of them.
When a buyer’s diligence team finds those gaps, one of two things happens. The deal dies, or the deal gets repriced. Either way, that’s not a market problem. That’s an execution problem.
What Does “12 Is The New 5” Mean For Value Creation?
It means the return math has fundamentally changed, and most sponsors haven’t fully adjusted.
Bain’s 2026 report uses the shorthand “12 is the new 5” to capture the shift. Back in the 2010s, a typical buyout needed just 5% annual EBITDA growth to generate a 2.5x MOIC over a five-year hold, because 50% of the purchase price was borrowed at 6–7% interest and multiple expansion did most of the lifting. Today the picture is different. Borrowing costs sit in the 8–9% range, leverage ratios are closer to 30–40%, and purchase multiples remain in record territory, so typical deals now require 10–12% average annual EBITDA growth to generate the same 2.5x return over five years. Bain & CompanyZawya
McKinsey arrives at the same conclusion from a different direction. Between 2010 and 2022, leverage and multiple expansion accounted for 59% of buyout returns. The remaining 41% came from revenue growth and EBITDA margin expansion. With cheap leverage and multiple expansion largely spent, operational value creation is now likely to be the primary source of returns. McKinsey & CompanyMcKinsey & Company
What that means in practice is uncomfortable. Portfolio companies have to perform better operationally than they used to. Not in the deck. In the numbers.
When Should Exit Readiness Work Begin?
The day the deal closes. Not eighteen months before a planned sale.
Most exit problems are seeded at the acquisition. Overpaying, over-leveraging, over-trusting incumbent management, underestimating operational complexity. These are decisions made at signing. The consequences only show up years later when the asset stalls and a buyer’s diligence team starts pulling threads.
A disciplined approach treats exit readiness as something you do continuously, not something you start when the bankers are picked.
It starts with diligence that includes operational reality, not just financial modeling. Spend time in the building. Talk to customers. Walk the floor. Understand fully burdened labor costs, working capital cycles, and the gap between estimating and execution before deploying capital.
It continues with a real 100-day plan after close. Not a slide. A working document that converts the investment thesis into measurable workstreams with named owners, weekly KPIs, and a governance cadence that survives leadership turnover.
Then it lives in a weekly cadence around the metrics that actually determine whether the company is becoming more valuable or less valuable. Pipeline growth and pipeline margin quality. Gross margin discipline. SG&A control. Fixed and variable cost structure. Compensation costs. Debt service coverage. Free cash flow. Management accountability against goals. Progress against a measurable exit timeline.
And it requires honesty about what’s broken. If a deal was overpriced, address it. If debt is too high, restructure it. If management isn’t strong enough, change it. If the business isn’t exit-ready, build a credible plan rather than waiting for the market to bail you out.
None of this is glamorous. It’s also where value actually gets created in a “12 is the new 5” environment.
What Should Lower-Middle-Market PE Firms Do Differently In 2026?
Three disciplines separate firms that will create exits from firms that will keep struggling.
The first is being more selective about what gets acquired. Underwrite operational reality, not optimistic synergy cases. Validate management depth, data quality, and margin durability before signing. Higher purchase multiples leave less room for error.
The second is being honest about what’s already owned. Inventory the portfolio against buyer-readiness criteria. Identify the assets that need an operational reset before they’re saleable, and start that reset now rather than at the eleventh hour.
The third is being operational about how value gets created. Build the systems that allow value creation work to compound across the hold period. KPI dictionaries. Weekly cadences. Initiative tracking. Margin controls. Bain’s own framing is direct: the winning firms will build systems, not slogans, and move from full potential diligence to execution on Day 1. Bain & Company
The firms that win the next cycle won’t be the ones with the most dry powder. They’ll be the ones who can turn operationally complex companies into buyer-ready businesses.
How AMSERV Helps Lower-Middle-Market PE Firms Close The Execution Gap
AMSERV has spent nearly four decades implementing operational improvements inside the kinds of businesses that fill lower-middle-market PE portfolios. Manufacturing. Distribution. Transportation and trucking. Construction. The work is on-site, hands-on, and measured in operating results: cash flow stabilization, margin recovery, KPI discipline, management accountability cadences, and exit-readiness preparation.
Learn more about AMSERV’s private equity portfolio consulting services.
Frequently asked questions
How many unsold portfolio companies are private equity firms holding in 2026? Approximately 32,000 globally, with a combined estimated value of $3.8 trillion, according to Bain & Company’s 2026 Global Private Equity Report.
What is the average holding period for a private equity portfolio company? Around seven years at exit, up from five to six years across most of the 2010 to 2021 period.
What percentage of private equity buyouts are add-ons? 72.9% of all US private equity buyouts in 2025 were add-on acquisitions, consistent with the five-year average, per PitchBook data summarized in Cherry Bekaert’s 2026 outlook.
Why is operational value creation more important now than it used to be? Because cheap leverage and multiple expansion, which McKinsey estimates accounted for 59% of buyout returns from 2010 to 2022, are largely spent. Bain estimates that typical deals now require 10 to 12% annual EBITDA growth to generate a 2.5x MOIC over five years, compared with just 5% in the 2010s.
When should a PE sponsor start exit readiness work? At acquisition close. The data infrastructure, management quality, margin discipline, and initiative tracking that buyers look for in diligence take years to build credibly. They cannot be assembled in the final months before a sale.
Sources: Bain & Company, Global Private Equity Report 2026; McKinsey & Company, Global Private Markets Report 2026: Private Equity; PitchBook 2025 Annual US PE Breakdown; Cherry Bekaert, Private Equity Report: 2025 Trends and 2026 Outlook.
