Private Equity Firms Turn to Operational Value Creation as Geopolitical Shocks Derail Deal Recovery
Private Equity Firms Turn to Operational Value Creation as Geopolitical Shocks Derail Deal Recovery
- Geopolitical volatility is the top challenge affecting value creation and returns in PE
- Active operational value creation accounts for half of EBITDA growth in more challenging environment
- Use of continuation funds and secondaries market doubles year-on-year as exits stall
- Nearly two-thirds of funds use AI in value creation programmes, up from 41% last year
LONDON--(BUSINESS WIRE)--Private equity firms are being forced to rethink how they create value as renewed geopolitical volatility, high entry valuations and prolonged exit timelines reshape the European dealmaking environment, according to the fifth annual Value Creation survey from professional services firm Alvarez & Marsal (“A&M”).
The single biggest challenge to value creation is now geopolitical volatility, according to 62% of respondents to A&M’s survey, narrowly ahead of tariff volatility and inflation, both at 58%.
In this more challenging environment, EBITDA growth for portfolio companies is increasingly driven by operational improvement rather than top-line expansion. A&M’s analysis of exited PE investments in Europe shows EBITDA margin improvement accounted for 51% of EBITDA growth in portfolio companies exited in 2025, up from 21.5% of those exited before 2023. The contribution of top-line expansion fell from 78.5% to 49% over the same period1.
While 61% of survey respondents remain optimistic about the 2026 exit outlook, half are extending value creation plans and refinancing portfolio company debt as they wait for conditions to improve.
Steffen Kroner, Managing Director, Private Equity Performance Improvement at A&M, said: “Private equity value creation has entered a new phase. The firms that outperform in this cycle will be those that build stronger businesses through operational discipline, sharper commercial execution and better use of data. Higher valuations, longer hold periods and geopolitical shocks have raised the bar for every value creation plan. Sponsors need to identify the operational levers before close and start executing from day one.”
Secondaries market has become a mainstream liquidity tool
With exit timelines lengthening, sponsors are increasingly turning to the secondaries market and continuation funds to provide liquidity. The secondaries market including continuation funds has seen a particularly sharp rise in adoption: 43% of PE firms are now using it, nearly double the 24% recorded a year ago, while the proportion accepting forced exits at lower valuations has fallen from 29% in 2025 to just 7%.
The majority of assets being transferred via the secondary market or into continuation funds are performing businesses. 45% of respondents describe them as performing in line with expectations but needing longer to deliver full value, while 42% characterise them as prized assets held back by unfavourable market timing. Pricing remains the key challenge in successfully executing continuation fund transactions. 64% of respondents cite GP-LP alignment on asset pricing as the biggest challenge in structuring these transactions, and 70% say rolling carried interest and GP co-investment are being used to secure LP support.
AI moves from experimentation to measurable value creation
AI adoption in private equity value creation has accelerated sharply over the past year, as nearly two thirds of respondents (63%) now use AI as part of their value creation activity, up from 41% in 2025. The nature of that deployment is maturing: 39% are now using AI across multiple functions within portfolio companies and delivering measurable value.
Data analysis and insight generation is the most common use case, cited by 69% of respondents, followed by operational efficiency (60%) and finance function optimisation (55%). Pricing analytics, demand forecasting, procurement optimisation and sales effectiveness are emerging as the key areas where AI is beginning to support EBITDA improvement in a meaningful way.
Significant barriers remain, however. 60% of respondents cite high cost and uncertain return on investment as the main obstacle to effective AI deployment, while 45% point to data quality and availability.
Raymond Timmer, Managing Director, Private Equity Performance Improvement at A&M, said: “AI is moving from experimentation to execution in private equity value creation. For Benelux sponsors, especially in technology and tech-enabled businesses, the opportunity is to connect better data directly to pricing, procurement, forecasting and finance processes. The firms that generate the most value will be those that use AI to improve margins, productivity and decision-making, instead of treating it as a standalone technology exercise.”
Sponsors front-load execution as hold periods lengthen
Private equity firms are also speeding up the implementation of value creation plans, with 58% now deploying resources within the first 100 days, double the 29% recorded last year, reflecting the growing complexity of operational improvement programmes.
Despite this shift, many programmes remain under-delivered, with 65% of respondents saying they have achieved less than half of the value targeted in plans developed over the past two years.
Notes to Editors
Methodology
In early February 2026, research firm Statista Q, on behalf of Alvarez & Marsal, surveyed 200 private equity fund investors and C-level executives from portfolio companies in Denmark, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom.
The survey contained both closed and open questions, and interviews were conducted over the telephone. Results were analysed and collated by Statista Q, and are presented here anonymised.
About Alvarez & Marsal
Founded in 1983, Alvarez & Marsal is a leading global professional services firm. Renowned for its leadership, action and results, Alvarez & Marsal provides advisory, business performance improvement and turnaround management services, delivering practical solutions to address clients’ unique challenges. With a world-wide network of experienced operators, world-class consultants, former regulators and industry authorities, Alvarez & Marsal helps corporates, boards, private equity firms, law firms and government agencies drive transformation, mitigate risk and unlock value at every stage of growth.
To learn more, visit: AlvarezandMarsal.com.
1 A&M analysed 240 PE exits in Western Europe from 2013 to 2025, focused on companies with revenue above €100 million. For the EBITDA growth decomposition, a subset of 68 deals was selected where full financial and operational data was available across the hold period, enabling a granular analysis of the individual drivers of value creation.