Private Equity Is Struggling to Sell What It Bought. Here Is What That May Mean If You Are Selling.

By FTI Consulting’s count, sponsors are holding roughly 1,400 more U.S. companies from the 2018 to 2022 vintages than they normally would, and sponsor-to-sponsor sales fell to a decade low in the second quarter. If you sell a lower middle market company this year, the buyer may well be a sponsor-owned platform, and the offer may well include an earnout.

For two years, private equity has been describing its own problem in unusually plain terms: too many companies bought at peak prices, too few of them sold. This summer, some numbers arrived. 

If you own a lower middle market company, the interesting question is not whether sponsors can sell. It is what their problem may do to your deal. 

The backlog, in numbers 

FTI Consulting’s August 12 analysis estimates the excess at roughly 1,400 U.S. companies from the 2018 to 2022 vintages that sponsors would normally have sold by now, nearly 11 percent of the 13,500 or so U.S. sponsor-owned companies PitchBook tracks. By FTI’s retention measure, the 2021 and 2022 deals are the stickiest of any vintage this century. They were also among the most expensive: large U.S. buyouts done in 2019 through 2022 priced at nearly 13 times EBITDA, against nine to eleven times for large buyouts from 2007 through 2018, per LSEG LPC data cited by FTI. A company bought at 13 times when rates were near zero is, in general, hard to sell at a profit today. So many of them have not been sold. 

Bain’s midyear report describes the same picture globally: around 33,000 unsold portfolio companies, holding periods approaching seven years, and a majority of buyout assets bought in 2021 or earlier. 

The exits have not caught up. PitchBook counts $102.6 billion of U.S. exit value in the second quarter, down roughly 46 percent from the first. Sponsor-to-sponsor sales fell to 94, the lowest quarterly count in at least a decade. A burst of IPOs helped at the very top, twelve listings that made up about 31 percent of exit value, but that door is generally open only to the largest portfolio companies. First-half U.S. realizations ran about 12 percent behind 2025, per PitchBook data reported by Cherry Bekaert. And when EY asked general partners whether they would take a discount to their own underwriting for immediate liquidity on a long-held asset, 90 percent said yes, most often 6 to 10 percent. 

That looks like a lot of motivated sellers who are having trouble finding buyers. 

Why this matters now 

Sponsors have several ways to return money to investors without selling the company. Three of the common ones: sell the fund interest in the secondary market, borrow against the company and pay a dividend, or buy smaller companies and bolt them on to make the platform bigger. The first is booming; the global secondary market hit a record of more than $120 billion in the first half of 2026, according to Evercore data reported by PitchBook. The third is where you may come in. 

Add-on acquisitions were roughly three-quarters of U.S. buyout activity in the second quarter by count, according to PitchBook data. A sponsor that cannot sell its platform at the price it wants can still try to improve the platform’s numbers by buying companies like yours at a lower multiple. So the most likely buyer for a lower middle market company right now is often not a fund writing a new platform check. It is a sponsor-owned operating company, sometimes several years into its hold, buying add-ons to show progress before an exit it does not yet have. 

In our experience, that buyer profile tends to show up in the terms. 

What may change when the buyer is a platform 

The offer is more likely to include an earnout. SRS Acquiom’s 2026 lower middle market report, drawn from more than 4,400 private-target deals closing through 2025, found earnouts in 35 percent of deals of $25 million or less and 29 percent of all lower middle market deals ($50 million or less), compared with 24 percent of 2025 deals across all sizes in SRS’s broader deal terms study. Earlier SRS research found reps and warranties insurance in fewer than a third of lower middle market deals, against roughly 40 percent of all deals in that dataset, which suggests your indemnity exposure is more likely to be backed by an escrow; the median general escrow in that research was 12.5 percent of the price. Every deal is different, of course, and these are market averages rather than predictions about yours. 

The diligence tends to be more intense, not less. A platform buyer is usually underwriting your company to its lender and its own investment committee, and both tend to care about whether the numbers hold: quality of earnings, customer concentration, margins, and how easily you integrate. Companies with clean financials, organized contracts, and a clear cap table generally move through this more smoothly. Companies without them may see the gap priced into the earnout or the escrow. 

The buyer’s own clock may matter. If the platform will itself be sold in the next two or three years, your rollover equity, your earnout metrics, and your post-closing role could all be riding on a second transaction you do not control. What happens to the earnout if the platform changes hands? What happens to your rollover stake when the sponsor exits? In our view those are LOI-stage questions, not purchase agreement questions. 

Questions worth asking before you go to market 

• Who the likely buyers are, platforms or new-platform sponsors, and what each may imply for structure 

• Whether your records would hold up to lender-grade diligence today 

• How you would compare an earnout proposal against a lower all-cash number 

• How rollover equity would be treated if the platform itself is sold 

• Whether the earnout definition would survive a change of control at the platform 

None of this argues against selling now. U.S. dry powder was a record $1.07 trillion as of the third quarter of 2025, the latest figure we have seen, and add-on buyers are active. It argues for walking in with a realistic picture of who the buyer is and what the buyer may be under pressure to do. 

The market data in this article is current as of September 10, 2026 and is drawn from the sources listed below. Quarterly figures are revised as data providers update their datasets, and different providers measure exits differently. 

How CGL can help 

CGL represents founders and owners selling lower middle market companies to strategic and sponsor-backed buyers, and we spend a good part of our time on earnouts, rollover equity, and escrow terms. 

If you are weighing a sale in the next year, or a platform buyer has already reached out, reply with the word “exit” and we will send you the short list of terms that, in our experience, most often shape what a sponsor-backed deal actually pays. Just the one word is enough; we will follow up.

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