PE’s Scaling Paradox Meets Rising Deal Activity

Good morning, ! This week we're covering private equity’s scaling paradox, deal activity continues to increase, the need to find a strong and durable investment thesis in diligence, and the telecom M&A deal value by region. 

Want to advertise in PE 150? Check out our ad platform, here.

Know someone who would love this? Pass it along—they’ll thank you later! Here’s the link.

DATA DIVE

The Small Fund Premium

Stat: Among lower and middle market buyout funds, first quartile managers generated 1.75x DPI, versus 1.50x for institutional buyout funds. The advantage is even sharper at the median, where smaller funds returned 1.15x DPI compared with just 0.80x for institutional funds.

Context: The tradeoff is dispersion. Gross IRR dispersion between the top and bottom deciles reaches 2,807 basis points among smaller managers, versus 2,099 basis points for institutional funds. That wider range is not simply additional risk. It reflects a less efficient market where smaller managers can pursue underfollowed businesses, face fewer competing bidders, and create proportionally more value through operational improvements.

Strategic Takeaway: For LPs, smaller funds offer more alpha potential, but less room for lazy manager selection. Scale may provide institutional comfort, yet the data suggests that rigorous diligence in the lower and middle market has historically produced more realized cash. The opportunity is not merely going smaller. It is getting manager selection right. (Read the Full Report HERE)

PRESENTED BY CAPLINK X PE 150

You’re invited: Where AI Meets Private Equity

Artificial intelligence has moved beyond experimentation. The real question for private equity firms is no longer whether to adopt AI, but how to turn it into measurable value across the investment lifecycle.

On November 18, PE150 and CapLink Group will host the AI / Data & Insight Private Capital Breakfast, an invitation-only gathering at London's May Fair Hotel that will bring together operating partners, deal teams, portfolio executives, and technology leaders to discuss what AI adoption actually looks like inside private equity.

The morning will feature three practitioner-led discussions:

• AI Into Value Creation — How leading firms are transforming AI from dashboards into repeatable value creation playbooks across portfolio companies. Sponsored by Exact Insight.

• AI Across the Investment Lifecycle — Practical applications spanning sourcing, due diligence, investment decisions, and portfolio management. Sponsored by our M&A Technology Partner Datasite.

• Building the AI-Enabled Private Equity Firm — The operating models, data strategies, and organizational capabilities required to scale AI successfully.

Interested in attending? Register or request the full agenda here.

Interested in sponsoring? Email [email protected] 

TREND TO WATCH

PE Is Doing Fewer Deals—and Writing Bigger Checks

Private equity is entering a more selective phase. US deal value has recovered strongly, reaching $1.19T in Q2 2026, but deal count continues to sit well below the highs of the 2021–22 cycle.

That divergence is the story. Capital is returning, but it is concentrating. KPMG describes the current environment as a “flight to quality,” with sponsors favoring larger, higher-conviction opportunities rather than broad-based deployment.

The shift also reflects where investors see structural growth. AI infrastructure, energy and natural resources, industrials and other asset-heavy businesses are attracting significant capital as sponsors look beyond traditional software and into the physical infrastructure supporting the digital economy.

For PE, the implication is clear: a recovery in aggregate deal value does not mean the market has returned to normal. Competition for high-quality assets is intensifying, while smaller or less differentiated businesses face a much narrower funding window.

PE is not deploying more broadly. It is deploying more selectively—and with bigger checks.

Read more

DILIGENCE CORNER BY 150 DILIGENCE

Will the Thesis Still Work in Year Five?

Most diligence asks whether a business is attractive today. The harder question is whether the investment still works when it is time to sell.

A five year hold period stress test starts at exit and works backward. What revenue growth must the company sustain? How much margin expansion is embedded in the underwriting? Who realistically buys the business at exit? And most importantly, what happens to returns if the next buyer pays a lower multiple?

This is where attractive deals can become fragile ones. If the investment case requires flawless execution, aggressive margin expansion, and a generous exit multiple, the sponsor is underwriting several things it cannot fully control.

The better diligence question is simple: How much can go wrong before the deal stops working?

For investment committees, that changes the conversation from whether the base case is achievable to whether the downside case is survivable. A strong thesis should not need Year Five to look exactly like the model. (More)

LIQUIDITY CORNER

Telecom M&A Is Reopening the Liquidity Valve

Telecom M&A is showing signs of life after two muted years. Global deal value more than doubled to ~$124B in 2024, with scale transactions accounting for 58% of total value.

But the more interesting story for private markets is happening underneath the headline number. Telecom operators are increasingly selling infrastructure and non-core assets, while financial investors and infrastructure funds are stepping in for towers, data centers and other digital infrastructure. Infrastructure divestments alone represented 19% of 2024 deal value.

That creates an increasingly important liquidity channel for PE and infrastructure investors. Asset sales can return capital to sponsors without requiring a full-company exit, while strategic buyers continue to pursue scale in networks and geographic footprint.

The telecom M&A market is not just recovering—it is becoming more segmented, creating more ways for investors to monetize individual assets.

Read more

MACROVIEW

AI’s Productivity Dividend Is Starting to Show Up

For years, AI’s productivity story was mostly theoretical. The data are beginning to catch up.

Federal Reserve research shows a clear relationship between AI usage and time savings. Computer and math workers spend roughly 12% of weekly hours using AI and report time savings equivalent to around 2.5% of the previous workweek. Management and business and finance occupations are also among the strongest beneficiaries.

But adoption alone is not the story. BCG found that roughly 70% of productivity uplift in an AI transformation came from changes to people, organization, and processes. Algorithms and technology contributed only 10% to 20% each. In other words, buying AI tools is easy. Redesigning a company around them is where the economics appear.

That distinction matters for PE. With median purchase multiples reaching 11.8 times EBITDA in 2025 and leverage offering less room for easy returns, operational productivity carries more weight in the value creation plan. AI could allow portfolio companies to grow revenue without equivalent growth in headcount, expanding margins and potentially exit EBITDA.

The opportunity is not owning companies that use AI. It is owning companies capable of turning AI into measurable output. (More)