Goldman Sachs banker flags private equity retreat from auctions as strategic buyers dominate

Private equity firms are increasingly walking away from deal auctions because they simply cannot keep up with what strategic buyers are willing to pay. That’s the assessment from one of Goldman Sachs’ most senior Swiss bankers, and it paints a stark picture of how higher interest rates have reshuffled the M&A pecking order.

Fedor Schulten, managing director at Goldman Sachs’ Zurich investment bank, laid out the problem at the EuropaInstitut conference on September 22. PE funds are exhibiting dropout rates as high as 50% in sell-side processes, he noted, a figure that would have been unthinkable during the easy-money years.

The math no longer works

The core issue is straightforward. Private equity firms rely on leverage to juice returns, and leverage got a lot more expensive when central banks hiked rates. Strategic buyers, meaning corporations acquiring competitors or complementary businesses, don’t face the same constraint. They can pay with cash on their balance sheets or stock, and they often extract synergies that financial buyers cannot.

The result is a quiet but meaningful shift in who wins deals. PE accounted for less than 20% of total M&A deals in Switzerland recently, marking the second-lowest share in eight years.

Stuck with pandemic-era baggage

Making matters worse, many PE firms are still sitting on assets they acquired during the pandemic boom, when interest rates hovered near zero and capital was practically free. Those deals were struck at peak valuations, and the firms behind them are now reluctant to sell at a discount.

Limited partners, the pension funds and endowments and sovereign wealth funds that back PE, are seeing distributions slow to a crawl. When exits dry up, LPs get less cash back, which in turn makes them more cautious about committing fresh capital to new funds.

What this means for the deal landscape

The retreat of financial buyers from competitive auctions doesn’t mean PE is going away. It means the playbook is changing. Firms that once thrived by winning auctions with aggressive leverage are being forced to find other approaches, whether that’s proprietary deal sourcing, minority stakes, or sector-specific strategies where they can add operational value rather than relying on financial engineering. PE firms are also increasingly exploring alternative liquidity solutions such as continuation funds.

For strategic buyers, the reduced competition is a tailwind. Benefiting from robust stock markets and strong earnings, corporate buyers can afford to pay premiums and act more swiftly in the auction process. The evolving competitive landscape has also resulted in a preference for selective sell-side processes, prioritizing bilateral negotiations and limiting the number of competitive bidders.

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