The Buyout Cycle: Peak, Reset, and the Megadeal Rebound

Introduction

The least volatile number in the latest buyout cycle was the price. On Bain & Company's count, global buyout deal value fell from about $1.1 trillion in 2021 to $438 billion in 2023 and climbed back to $904 billion in 2025, yet North American and US purchase multiples slipped only from about 12.3 to almost 11 times earnings before interest, taxes, depreciation and amortization (EBITDA) between the peak and the trough. The market adjusted through volume instead: how many deals lenders would finance, and how many owners would sell at a price buyers could fund. Four forces set that volume at every turn (the cost of debt, the gap between bid and ask, the age of uninvested capital and the pressure to return cash), and each phase arranged them differently. Read that way, the 2021 peak, the rate reset of 2022 and 2023, the 2025 megadeal rebound and the pullback of early 2026 form one sequence, and each phase changed which mandates banks won.

A buyout is priced backwards from its financing. A sponsor's maximum bid is roughly the debt lenders will provide plus the equity its return target allows, so the cost of debt sets a ceiling before any seller is asked. When base rates and credit spreads rise, the same company supports less debt at a higher coupon, and either the equity check grows or the bid falls. On one deal that transmission is laid out in how the rate level feeds through to LBO capacity; across a market, it decides how many leveraged buyouts (LBOs) can be financed at all.

Sellers reprice more slowly. A private owner marks its company each quarter and remembers what it paid, while a listed target's board watches a daily share price. When financing costs jump, buyers cut bids at once and private sellers wait, so the bid-ask spread widens until one side gives way or the deal dies.

Bid-Ask Spread (Private Equity)

The gap between the price buyers can fund and justify at current financing costs and the price owners will accept, often anchored to an earlier valuation or the company's carrying value. A wide spread shows up as falling deal volume rather than falling prices, because transactions that cannot bridge it simply do not happen.

The other two forces push volume back up. Dry powder, capital committed to funds but not yet invested, ages, and a fund that cannot deploy within its investment period puts its next fundraise at risk, so old capital raises what buyers will pay, the effect examined in deployment pressure and the premiums it produces. Exit pressure works through the sellers: limited partners who receive little cash commit less to new funds, which pushes sponsors toward prices they refused a year earlier. A turn comes when these pairs cross. The table maps the phases on one survey basis, Bain's global buyout value excluding add-ons as first published, with the Federal Reserve (Fed) target range marking the cost of money.

The value column needs one caution. Each figure is a first estimate, and Bain revises earlier years as late transactions are reported and abandoned ones drop out, so each report's percentage changes are measured against a restated base rather than the level published a year before.

The peak was built on the price of money. The Fed held its target range at 0 to 0.25% from March 2020 until March 2022, according to its record of target rate changes, so leveraged loans priced off a base rate near zero. Bain's Global Private Equity Report 2022 counted $1.1 trillion of buyouts in 2021, double 2020's $577 billion and well above the previous record of $804 billion set in 2006, and the average deal passed $1 billion for the first time. Floating-rate debt at those base rates let a sponsor carry high leverage with comfortable interest coverage, so the debt column of every bid was large and cheap.

Cheap debt lifted the multiple sponsors could pay. Bain put North American buyout multiples at 12.3 times EBITDA in 2021 and public-to-private deals at 19.3 times, against 12.6 times for take-privates in 2007. A take-private at that price works only if the exit multiple holds or rises, so much of the period's return case leaned on multiple expansion rather than on earnings growth alone.

Multiple Expansion

The part of a buyout's equity gain that comes from selling the company at a higher valuation multiple than the sponsor paid, as distinct from earnings growth and debt paydown. It depends on market conditions at exit, so a return case that relies on it carries a risk the sponsor cannot control.

For banks, a peak means underwriting volume: committed financing for large take-privates, full auctions because buyers had equity and debt, and plentiful sponsor-backed initial public offerings (IPOs). The same conditions stored up problems, as commitments signed at peak terms were still unsold when rates turned.

The reset started in the debt markets and finished in the price sellers would accept. The Fed raised its target range 11 times between March 2022 and July 2023, from 0 to 0.25% to 5.25 to 5.50%, a 525 basis point monetary tightening that Bain described as the sharpest in decades. On Bain's count, global buyout value fell 35% to $654 billion in 2022 and another 37% to $438 billion in 2023, the lowest total since 2016, and the decline ran through deal size as much as deal count.

Financing Shut First

The first casualty was the large underwritten loan. Bain's 2023 report describes banks pulling back from buyout financing after the Fed's June 2022 increase, and leveraged loan volume across the US and Europe fell 50% to $203 billion for the year. Commitments signed before the turn had to be funded anyway, and banks that could not sell them near par ended up holding hung debt; the Citrix, Twitter and other losses that followed are traced in the 2022 hung deals and what they cost underwriters.

By 2023 the cost showed in every term sheet. Bain's 2024 outlook records yields on large syndicated loans approaching 11% in the US and 9% in Europe, both 10-year highs, debt multiples down 17% to 5.9 times EBITDA, the lowest since 2012, and nearly half as many megadeals above $5 billion. Smaller deals still closed because direct lenders took them, providing about 80% of middle-market loans in 2022 and 84% in 2023 on Bain's figures, and the average deal shrank to $788 million in 2023.

Sellers Held Their Price

Prices fell far less than volume. Bain put US purchase multiples at almost 11 times EBITDA in 2023, modestly below the peak, and described "an unbridgeable spread between bid and ask." The mechanism was the 2021 vintage: the same company financed at 2021 and at 2023 rates supports two different prices, and an owner who bought at the first could not sell at the second without crystallizing a poor return. Rather than sell below their marks, many owners chose a longer hold, and a held company is a deal that never enters the count.

Where the Bank Work Went

The reset moved bank revenue from new money to existing balance sheets. Sponsor coverage teams, a financial sponsors group (FSG) at most large banks, spent 2022 and 2023 selling down hung commitments, negotiating amend-and-extend deals for nearing maturities and, where no syndicate would take a credit, introducing sponsors to direct lenders, the choice weighed in how sponsors decide between the syndicated market and private credit. Exits thinned too, with Bain counting buyout-backed exit value down 42% in 2022 and 44% in 2023, which postponed sell-side mandates and pushed sponsors toward liquidity tools that need no buyer.

The recovery began before the megadeals. The Fed cut by half a point in September 2024 and twice more by December, a path followed in the Fed's cutting cycle and what it did to bond markets, and Bain counted buyout value up 37% to $602 billion in 2024 as syndicated loan issuance rose 83% and sponsors put about $282 billion of aging dry powder to work. The tariff shock of April 2025 froze activity for weeks, yet the year finished at $904 billion, up 44% on Bain's Global Private Equity Report 2026, with 13 deals of $10 billion or more supplying $274 billion of the gain while deal count fell 6%.

Why Size and Take-Privates Led

Large deals depend on the one market that can absorb a multi-billion-dollar term loan in days, and Bain describes the syndicated loan market of 2025 as open to large, high-quality borrowers, with private credit still the lender of choice below $1 billion. The two markets competed for the biggest tickets: banks won Thoma Bravo's $5.5 billion Dayforce term loan, priced at 300 basis points over the Secured Overnight Financing Rate (SOFR) as set out in the Dayforce mandate and the banks behind it, while an Apollo-led private credit group financed the same sponsor's $10.55 billion Jeppesen carve-out from Boeing, covered in the carve-out playbook.

Public targets led for a reason on the sellers' side. A listed company's value is visible every day, so the board weighs a takeover premium against the share price instead of defending an old private mark, while Bain found inflated seller expectations among the two most common obstacles to completing deals in 2025. Public-to-private transactions supplied roughly half of the year's growth in value. Sycamore's take-private of Walgreens, completed in August 2025 and described in the sector specialist sponsor model, and 3G Capital's purchase of Skechers, covered in management buyouts and rollover, mark the shift.

Whose Equity Paid for the Megadeals

The largest change in the rebound sat in the equity column. Bain's 2026 report concludes that in many of the biggest deals the bulk of the equity came from sovereign wealth funds and corporate buyers rather than buyout funds. Electronic Arts closed in August 2026 with Saudi Arabia's Public Investment Fund (PIF) holding more than 90% of the equity alongside Silver Lake and Affinity Partners, the co-sponsor role examined in sovereign wealth funds and pensions as direct investors. Blackstone and TPG's Hologic take-private, completed in April 2026, carried minority equity from an Abu Dhabi Investment Authority subsidiary and a GIC affiliate, as mapped in the sponsor universe.

Other megadeals were built around a consortium in which the financial investor was one member among industrial and sovereign partners. The agreement to buy Aligned Data Centers at an enterprise value of about $40 billion, announced in October 2025 and completed in July 2026, paired MGX and BlackRock's Global Infrastructure Partners (GIP) with the Artificial Intelligence Infrastructure Partnership (AIP), founded with Microsoft and NVIDIA and anchored by the Kuwait Investment Authority and Temasek. Air Lease went to a group in which Sumitomo and SMBC Aviation Capital took majority control and Apollo and Brookfield minority stakes.

The rebound stalled within months. Bain's midyear report traces the stall to three blows landing within months of each other: software valuations falling on worries that artificial intelligence (AI) would erode the software model, investors asking to withdraw from private credit funds, and an oil shock after war broke out in Iran. Its deal cost index, which combines purchase multiples with financing costs, sat in record territory, so entry was at its most expensive just as confidence fell.

The losses concentrated where the rebound had been strongest. PitchBook's US figures for the second quarter show deal value down 23.9% year on year to $177.3 billion, with only five megadeals of $2.5 billion or more worth $25.9 billion together and take-private value of $6.2 billion across 11 deals, while add-ons kept their roughly three-in-four share of buyout counts; the full set of readings is in the survey-by-survey view of the sponsor market.

The pattern follows the mechanism. Megadeals and take-privates need large underwritten financings and equity partners willing to commit for years, and both retreat first when the outlook clouds; Bain estimates that technology deal value fell about 70% from the fourth quarter of 2025 to the first, removing much of the large-deal pipeline. Add-ons held because they are small, often funded from facilities the platform already has, and usually bought below the platform's own multiple.

Bank work shifted back toward existing debt, with PitchBook LCD (Leveraged Commentary & Data) showing sponsor-backed borrowers weighted toward refinancings and maturity extensions. In September 2026 the Fed raised its target range by a quarter point to 3.75 to 4.00%, its first increase since July 2023, so the variable that drove the reset moved against borrowers again; what that implies is weighed in the scenarios for the next phase of sponsor dealmaking.

Each phase of a buyout cycle hands its balance sheets to the next, and three legacies now sit side by side in sponsor portfolios:

Each calls for different work: the first needs exits and liquidity at prices that may still disappoint the owner, the second needs refinancing whenever the syndicated market opens, and the third needs little from a bank until its owners sell or list. A coverage book that reads only the latest deal-value figure misses that the mandates of any phase are largely set by the deals of the phase before it.

The 2025 rebound ran on debt priced below its 2023 highs and on equity drawn increasingly from sovereign and corporate partners, while the companies still waiting to be sold were financed for money that no longer exists. The first half of 2026 showed how quickly the debt side of that arrangement can reverse, and the next turn depends on how the 2021 vintage is reconciled with buyers whose cost of capital has now moved in both directions.