Private Equity Faces Market Challenges But Spots Legal Opportunities
Private equity deal volume falls sharply as firms pivot to AI and infrastructure investments.
Why it matters: Legal advisors must adapt as private equity clients face tougher conditions but invest in AI and infrastructure projects. These trends open new avenues for legal services amid regulatory changes.
- Global private equity deals hit the lowest level since early 2021, with just 19,682 deals on a rolling 12-month basis.
- Private equity fundraising dropped to $373 billion, the lowest since 2017, while average deal size nearly quadrupled in H1 2026.
- 82% of firms expect deal prices to rise due to fierce competition; 71% are exploring portfolio spin-offs (carve-outs).
- 56% of private equity firms now use AI in due diligence and valuations, signaling a tech-driven shift in dealmaking.
Private equity (PE) firms are navigating a complicated 2026 marked by a drop in deal volume but strategic pivots to new sectors and technologies. According to KPMG analysis, global PE deals have declined to 19,682 over the past year—the lowest since early 2021. Fundraising also dipped, reaching $373 billion, the smallest haul since 2017.
Despite fewer deals, the average deal size nearly quadrupled in the first half of 2026, reflecting a shift toward larger, high-conviction investments.
Private equity firms are honing in on infrastructure projects tied to artificial intelligence (AI), energy transition, and transportation. Tilman Ost of KPMG notes the growing pressure to deploy capital effectively in this climate.
AI is increasingly embedded in PE processes, with 56% of firms using AI tools for due diligence and valuations, says KPMG’s recent M&A report. PwC’s Eric Janson underscores AI’s transformative potential on PE strategies and dealmaking.
Competition is intensifying: 82% of firms foresee rising deal prices, while 71% are actively pursuing carve-outs to optimize portfolios, driven by a 34% decline in deal count but a focus on quality, per BDO’s report.
Regulatory risks add complexity. The SEC is proposing to rescind Rule 206(4)-5, easing restrictions on adviser political contributions, a potential game-changer for PE firms that advise government clients (Axios). Meanwhile, California has passed legislation limiting PE influence over law firms to curb improper control or influence on litigation decisions (Axios).
The evolving market dynamics demand that legal advisors serving private equity clients enhance expertise in infrastructure, carve-outs, AI-driven due diligence, and compliance with shifting regulations to stay competitive and relevant.
By the numbers:
- 34% — decline in global and U.S. private equity deal volume in H1 2026 vs. H1 2025
- $373 billion — private equity fundraising in 2026, lowest since 2017
- 56% — private equity firms employing AI in due diligence and valuations
Yes, but: While opportunities in AI and infrastructure grow, overall market contraction and regulatory scrutiny create headwinds for private equity and legal advisory alike.
What's next: Watch for regulatory updates from the SEC on the pay-to-play rule and the practical impact of California’s law on PE-law firm relationships in late 2026.