Private equity’s retreat from auctions hits 50% dropout in Swiss M&A deals

Private equity firms are backing away from competitive deal auctions at a pace that would have seemed absurd just a few years ago, according to one of Goldman Sachs’ most senior Swiss dealmakers. The private equity retreat from sell-side auctions has reached dropout rates as high as 50%, a sign that the traditional playbook for winning corporate takeovers no longer works the way it used to when money was cheap.

Key takeaways

• Private equity firms are exiting sell-side auction processes at rates of up to 50%, according to Goldman Sachs.
• Higher interest rates have made leverage more expensive, weakening PE’s ability to compete with cash-rich strategic buyers.
• Private equity’s share of Swiss M&A deals has fallen below 20%, the second-lowest level in eight years.
• Many PE firms are still holding pandemic-era assets bought at peak valuations, reluctant to sell at a loss.
• Firms are pivoting toward proprietary sourcing, minority stakes, sector-focused bets, and continuation funds.

Private Equity Withdrawal from Sell-Side Auctions

Private equity funds are walking away from bidding processes because they can no longer match what corporate buyers are willing to pay. Fedor Schulten, managing director at Goldman Sachs‘ Zurich investment bank, laid out the problem at the EuropaInstitut conference on September 22, pointing to dropout rates as high as 50% in sell-side processes.

That figure would have looked implausible during the era of near-zero borrowing costs, when private equity firms routinely outbid corporate rivals by leaning on cheap debt. Today, the calculation looks very different, and the private equity retreat auctions trend is becoming one of the clearest signals of how the M&A pecking order has shifted since central banks began tightening policy.

Impact of Rising Interest Rates on Deal Dynamics

Higher borrowing costs have flipped the advantage from financial sponsors to corporate acquirers, changing who actually wins a deal once bidding gets competitive. The mechanics are simple but consequential: private equity depends on leverage to boost returns, and that leverage has become far pricier since central banks raised rates.

Cost of Leverage and Financing Differences

Private equity firms have traditionally relied on debt-fueled buyouts to generate the kind of returns their investors expect. When central banks hiked rates, that borrowed capital stopped being nearly free, squeezing the margins that made aggressive bidding possible in the first place.

Strategic Buyers’ Funding Advantages

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 with stock, and they often extract synergies that financial buyers simply cannot replicate. That combination lets them outbid private equity without needing to stretch on financing terms.

Shifts in Swiss M&A Market Share and Private Equity Strategies

The numbers back up what Schulten described from the trading floor. Private equity’s share of Swiss M&A deals has dropped below 20%, marking the second-lowest share in eight years, a stark contrast to the boom years when financial sponsors competed aggressively for nearly every mid-market target.

A lingering legacy effect explains part of the trouble: numerous private equity firms continue to hold onto assets bought during the pandemic-era boom, back when borrowing costs sat close to zero and money was essentially free to access. Because those transactions were made at the height of valuations, the firms involved are hesitant to offload them at reduced prices now that the market landscape has shifted.

This is squeezing private equity from both directions. Limited partners, the pension funds, endowments, and sovereign wealth funds that back these firms, are seeing distributions slow to a crawl as exits dry up. When LPs get less cash back from existing investments, they naturally grow more cautious about committing fresh capital to new funds, tightening the pipeline of dry powder available for future deals.

In response, private equity firms are rewriting their approach rather than abandoning the market altogether. Instead of chasing auctions with aggressive leverage, many are turning to proprietary deal sourcing, minority stakes, and sector-specific strategies where they can add operational value rather than relying purely on financial engineering. Firms are also increasingly exploring alternative liquidity solutions such as continuation funds to manage aging portfolios without forcing discounted sales.

Advantages for Strategic Buyers in the Current Auction Environment

Strategic buyers are the clear beneficiaries of this shift, and the reasons go beyond simple pricing power. Benefiting from robust stock markets and strong earnings, corporate acquirers can afford to pay premiums and move faster than financial sponsors weighed down by financing conditions and investor caution.

The competitive landscape itself has also changed shape. Sellers are increasingly favoring selective sell-side processes that prioritize bilateral negotiations over broad auctions, limiting the number of competitive bidders involved. That structural shift compounds the disadvantage facing private equity, since fewer bidders in the room generally means less pressure on strategic buyers to overpay just to win.

Taken together, these dynamics suggest the current environment isn’t a temporary blip so much as a structural rebalancing of who gets to set the price in M&A. As long as leverage stays expensive and corporate balance sheets stay strong, strategic buyers look set to keep the upper hand in Swiss deal-making, while private equity firms search for new ways back into the game that don’t depend on outbidding a rival with cheaper cash.

FAQ

Why are private equity firms withdrawing from sell-side auctions?

Rising interest rates have increased leverage costs, making it harder for private equity to compete with strategic buyers who pay with cash or stock and extract synergies.

How have strategic buyers gained advantage in Swiss M&A auctions?

Strategic buyers benefit from strong earnings and robust stock markets, allowing them to pay premiums and conduct bilateral negotiations with fewer competitive bidders.

What challenges do limited partners face that affect private equity fundraising?

Limited partners face slow distributions from exits, making them more cautious about committing fresh capital to new private equity funds.

How are private equity firms adapting their strategies amid this market shift?

They are focusing on proprietary deal sourcing, minority stakes, sector-specific strategies, and alternative liquidity options like continuation funds.

Article produced with the assistance of artificial intelligence and reviewed by the editorial team.