The tide is turning for private equity (PE). Fundraising remained soft through late 2025, with $507 billion raised by the third quarter—only 73% of the 2024 total, according to Preqin’s Global Report 2026. The report indicated 88% of investors intend to maintain or increase their long-term PE allocations. This sets a foundation for recovery. In 2026, M&A is looking like it will be the primary lever for PE-backed companies seeking growth and liquidity.
The liquidity squeeze and the M&A solution
Despite the signs of recovery, the main challenge of early 2026 is the exit bottleneck. For years, fund managers have struggled to return capital to investors. The Financial Times indicated back in 2024 that limited partners now demand cash returns before committing to new funds. With the IPO market remaining selective, M&A has become the necessary path for realisations.
On this premise, buy-and-build strategies will likely lead in the first quarter of 2026. PE-backed companies are using M&A to consolidate fragmented markets. A long-lived strategy of funds that claim this approach creates value through operational synergies. White & Case notes that “survival consolidation” is driving activity in sectors such as media and telecommunications. These deals allow firms to scale quickly and integrate AI efficiencies.
Latin America: A change in geopolitics
Latin America is now a structurally vital market. Geopolitical shifts and nearshoring trends spurred during the COVID pandemic make the region attractive. Investors see an easier environment for negotiation and valuation in 2026. Mexico and Brazil, in particular, remain the regional centres for this activity.
Mexico benefits from its proximity to the United States. Manufacturing M&A is surging as companies relocate supply chains. Meanwhile, Brazil remains a powerhouse for PE. Crunchbase data shows Brazil-based startups raised $692 million in Q3 2025, a 92% increase from the previous quarter. This momentum is on course to carry into 2026, specifically in fintech and B2B software.
However, the region faces trade policy risks. The region must balance complex relationships with both Washington and Beijing alongside imposed tariffs. This uncertainty makes M&A a safer choice than building new projects from scratch. Investors prefer acquiring established assets with proven cash flows.
Recent US interventions in Venezuela and trade policy shifts have introduced unprecedented volatility. According to Capital Economics, “gunboat diplomacy” and drug-trade concerns are creating friction in trade negotiations. This uncertainty makes M&A a safer bet than long-term greenfield projects, as investors prefer acquiring established assets with proven cash flows.
Sector trends: AI, Energy, and Fintech
In Q1 2026, deal activity will focus on three areas:
Artificial Intelligence
AI is no longer a niche interest. Crunchbase predicts that the race for talent and tech will accelerate M&A. PE firms are acquiring AI-enabled companies to modernise their portfolios.
Energy Transition
A major investment corridor exists between the Middle East and Latin America. White & Case reports that Gulf sovereign wealth funds are taking strategic stakes in Latin American renewable energy and critical minerals.
Fintech
Latin America is a testing ground for financial innovation. M&A activity is high as traditional banks acquire digital platforms to bridge technological gaps.
Market discipline and risks
The outlook is not without risk. The fear of an “AI bubble” remains. If a market correction occurs, highly leveraged deals will suffer. However, the current environment is more disciplined than the 2021 peak. HarbourVest suggests US buyout multiples have eased to 12x EBITDA, down from 12.8x. This return to pre-pandemic levels suggests a healthier foundation for 2026.
Private credit will be integral to deal completion, as will data analysis. EY reported that the lines between banks and private lenders are “blurring”, with banks increasingly lending to private credit funds, which in turn provide the necessary capital for mid-market M&A. EY also reported that 53% of PE firms are hiring digital transformation specialists to ensure acquisitions deliver results.
2026 Expectations
M&A will be the chosen investment lever for 2026. Organic growth is too slow to satisfy investors. M&A offers a faster path to scale and technological strength.
In the first quarter of 2026, here are developments to watch:
- Add-on acquisitions in industrial supply chains in Mexico
- Mid-market buyouts of AI-enabled software in Brazil
- Cross-border deals in renewable energy funded by Gulf capital
What does all of this indicate? The liquidity jam could be coming to an end, and the companies that use M&A effectively will lead this new cycle.
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