Private Equity Dry Powder May Drive Mergers and Acquisitions in 2026

February 2, 2026

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Private equity financing is frequently an attractive option for funding mergers and acquisitions, and industry experts are predicting that significant amounts of “dry powder” held by private equity companies will be deployed in 2026. This article discusses what dry powder is in the private equity context, what industry experts are predicting will happen with dry powder in 2026, and how dry powder may affect mergers and acquisitions in 2026.

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What is Dry Powder in the Private Equity Context?

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Dry powder is an important metric for gauging the private equity industry’s immediate purchasing power.[1] The term “dry powder” refers to uncalled capital committed by limited partners (LPs) to private equity funds and is typically measured in aggregate across the entire global private equity industry.[2] Notably, the contractual agreements governing these funds often define a set window of time in which dry powder must be deployed.[3]

Why are Industry Experts Focused on “Dry Powder” in 2026?

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According to Pitchbook, a private equity data specialist, “[c]losed-end private capital funds globally held $4.63 trillion of dry powder at the end of Q2 2025, up $201.5 billion, or 4.6%, from year-end 2024.”[4] The amount of sidelined dry powder, combined with approaching deadlines for funds to use that money, is anticipated by industry experts to increase pressure on fund managers to deploy that capital quickly.[5] In other words, private equity firms are likely to be fervently looking for investment opportunities to close quickly, which is anticipated to generate increased merger and acquisition activity in 2026. This will increase the competition for targets which “can drive up valuations, benefiting sellers who can leverage multiple offers to maximize their sale price.”[6]

However, the Federal Reserve warns that pressure to deploy dry powder and continued competition with banks could compromise underwriting standards:

Since private credit managers have a mandate to deliver high returns to LPs within a fixed timeframe, fund managers might choose riskier deals, offer more covenant-lite loans, or, more generally, reduce underwriting standards as opportunities dry up when the economy slows down. Combined with a high concentration of dry powder within a few funds, fund managers run the risk of structuring deals poorly going forward in order to boost the internal rate of return. Deterioration in deal quality can raise future defaults, hurting fund performance and investors’ returns, given relatively low recovery.[7]

The ABF Journal reports that this “prediction [is] now playing out across middle market transactions.[8]

How does Dry Powder Affect Mergers and Acquisitions?

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If you are a business owner considering taking some money off the table, seeking to sell your business, or looking for some capital to grow your business, now might be a good time to look to private equity as a buyer or growth capital provider. However, the pressure on fund managers to deploy their dry powder quickly may result in compressed transaction timelines that may reduce the time available for buyers and sellers to negotiate deal points and conduct due diligence, and increase the pressure and stress of engaging in such a transaction. For all these reasons, it is important to involve third-party experts, including legal counsel, early in the process to enhance negotiating power and mitigate business risks.

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Our Team

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If you’re considering private equity as a growth capital partner or purchaser of your business, contact BHGR’s Corporate Group today. Our attorneys have successfully closed hundreds of complicated deals totaling billions of dollars in transaction value. Our attorneys represent private companies, public companies, and private equity clients across all categories of participants in transactions, including buyers, sellers, stockholders, venture capitalists, lenders, financial advisors, management, founders, investors, and private equity funds.

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[1] See https://legalclarity.org/what-is-dry-powder-in-private-equity/

[2] See https://legalclarity.org/what-is-dry-powder-in-private-equity/

[3] See id.

[4] https://pitchbook.com/news/articles/global-private-market-funds-dry-powder-dashboard-2026

[5] See, e.g., https://fnex.com/private-equity-investors-enter-2026-with-renewed-optimism/

[6] https://woodbridgegrp.com/blog-posts/understanding-dry-powder-and-what-it-means-for-mergers-acquisitions/#:~:text=In%20financial%20jargon%2C%20dry%20powder,and%20acquisitions%20(M&A)%20landscape

[7] https://www.federalreserve.gov/econres/notes/feds-notes/private-credit-characteristics-and-risks-20240223.html

[8] https://www.abfjournal.com/record-dry-powder-fuels-documentation-deterioration-and-pik-proliferation/#:~:text=Private%20equity%20dry%20powder%20at,out%20across%20middle%20market%20transactions

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