Key Takeaways
- • Private equity firms are exiting auctions at rates as high as 50%, according to Fedor Schulten, managing director at Goldman Sachs' Zurich investment bank, speaking at the EuropaInstitut conference on September 22, 2026.
- • Strategic buyers—corporations acquiring competitors or complementary businesses—are outbidding financial buyers because they can leverage cash balance sheets, equity financing, and synergy extraction unavailable to PE firms facing elevated borrowing costs.
- • PE accounted for less than 20% of total M&A deals in Switzerland recently, marking the second-lowest share in eight years, reflecting a structural shift in M&A market composition.
- • Many private equity firms remain burdened by pandemic-era acquisitions struck at peak valuations when interest rates were near zero, creating reluctance to exit at discounted prices and delaying distributions to limited partners.
- • Limited partner distributions are slowing significantly, reducing capital commitments to new PE funds and creating a feedback loop that constrains private equity's ability to compete in high-valuation deal environments.
Summary
Private equity's competitive position in M&A has deteriorated sharply as higher interest rates have fundamentally altered deal economics. Fedor Schulten, managing director at Goldman Sachs' Zurich investment bank, highlighted this shift at the EuropaInstitut conference on September 22, reporting that PE firms are dropping out of sell-side auction processes at dropout rates as high as 50%—a dramatic reversal from the pre-rate-hike environment when such attrition would have been anomalous.
The root cause reflects a structural imbalance in financing constraints. Private equity firms historically competed by leveraging deals to amplify returns, but the significant increase in borrowing costs has eroded the mathematical appeal of leveraged acquisitions. In contrast, strategic buyers—corporate acquirers pursuing competitive consolidation or complementary asset purchases—operate without comparable leverage constraints. These buyers can deploy balance sheet cash, issue equity, or access lower-cost debt markets, and they unlock synergies that financial sponsors cannot capture. This synergy advantage provides strategic buyers with pricing power that PE simply cannot match under current cost-of-capital conditions.
The market share data underscores the magnitude of this shift. PE accounted for less than 20% of total M&A deals in Switzerland in recent periods, representing the second-lowest share in eight years. This decline reflects not just current deal selection but also the structural weight of pandemic-era legacy assets. Many PE firms remain invested in companies acquired when interest rates hovered near zero and capital availability was abundant. Those acquisitions were priced at peak valuations, and current market conditions have created significant unrealized losses for investors unwilling to crystallize losses through discounted exits.
This lockup in legacy assets has cascading consequences for the PE funding ecosystem. Limited partners—pension funds, endowments, and sovereign wealth funds that provide capital to PE funds—are experiencing slower distributions as PE sponsors delay exits to avoid selling underwater. Reduced LP returns translate directly into reduced appetite for new fund commitments, tightening capital availability for future PE investments and further weakening PE's competitive position relative to better-capitalized strategic buyers.
The root cause reflects a structural imbalance in financing constraints. Private equity firms historically competed by leveraging deals to amplify returns, but the significant increase in borrowing costs has eroded the mathematical appeal of leveraged acquisitions. In contrast, strategic buyers—corporate acquirers pursuing competitive consolidation or complementary asset purchases—operate without comparable leverage constraints. These buyers can deploy balance sheet cash, issue equity, or access lower-cost debt markets, and they unlock synergies that financial sponsors cannot capture. This synergy advantage provides strategic buyers with pricing power that PE simply cannot match under current cost-of-capital conditions.
The market share data underscores the magnitude of this shift. PE accounted for less than 20% of total M&A deals in Switzerland in recent periods, representing the second-lowest share in eight years. This decline reflects not just current deal selection but also the structural weight of pandemic-era legacy assets. Many PE firms remain invested in companies acquired when interest rates hovered near zero and capital availability was abundant. Those acquisitions were priced at peak valuations, and current market conditions have created significant unrealized losses for investors unwilling to crystallize losses through discounted exits.
This lockup in legacy assets has cascading consequences for the PE funding ecosystem. Limited partners—pension funds, endowments, and sovereign wealth funds that provide capital to PE funds—are experiencing slower distributions as PE sponsors delay exits to avoid selling underwater. Reduced LP returns translate directly into reduced appetite for new fund commitments, tightening capital availability for future PE investments and further weakening PE's competitive position relative to better-capitalized strategic buyers.
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