Navigating Exits, Capital, and Continued Volatility in 2026

CHRIS MOYNIHAN (00:02):

Welcome to Solomon Connects. I’m Chris Moynihan, a director in the M&A group, and I’m joined today by Sash Rentala, head of our Financial Sponsors Group. Sash[TB1.1][KF1.2], welcome to the podcast.

SASH RENTALA (00:12):

Great to be here, Chris.

CHRIS MOYNIHAN (00:14):

So, love to just start by talking a little bit about what you’ve been doing. You joined the platform six years ago. Hear a little bit about the group you’ve built and where you guys are focused.

SASH RENTALA (00:23):

I can’t believe it’s been six years. I left and joined Solomon mainly because I met Mark Cooper, the CEO, and was blown away by his strategy, with regard to building out a world-class boutique. When I started, it was very focused on a very narrow set of industry verticals. And the strategy was to expand into multiple verticals that target private equity. And that really intrigued me. Today, the growth has been astounding. We’re at 12-plus industry verticals. We are covering a lot more content and deal flow regarding private equity, and we’ve become a very notable brand within the private equity community. In terms of my team, we have three coverage officers. We cover on a regional basis most of the US. We have a junior team, and we’re looking to continue to expand and continue to develop our relationships with private equity.

CHRIS MOYNIHAN (01:17):

Your team publishes the annual financial sponsors trend report, and in it you talked about this sort of cautious optimism — that we haven’t quite seen that uptick in volume that we’ve been waiting for over the last few years, but there’s definitely the green shoots and you expect more M&A activity this year. Do you want to unpack that a little bit and talk about some of the trends you’re seeing for 2026?

SASH RENTALA (01:38):

Sure. Let’s break down what private equity is. It’s essentially a group of capital that is focused on private investments, and you have supply and demand. The funds are looking to buy assets and deliver a return; that is, outsized returns for the fact that they’ve got to hold up and be a liquid for 10 years. And that is challenging, because it is not easy to buy a business, improve it, sell it, and getting back investors’ money that returns capital above the S&P 500. So, the dynamics are interesting in what’s going on right now. And it’s simply a supply-and-demand game. On the demand side, there’s a trillion of capital in the US alone looking for deals. And if you think about it globally, it’s trillions; three-to-four trillion of dry powder just looking for deals. And then, the supply side is really the issue — where a lot of assets were purchased back in the pandemic, really from 2018 to 2022. And those assets were bought at very high prices, mainly because interest rates were quite low. And because interest rates were low, capital was basically free. People can purchase these assets at very high prices. Fast-forward five years, six years. These assets should be ready for sale. The thing is, interest rates have gone up, they’ve remained elevated. And then, we have the macro factors that we’ll talk about, I’m sure — about Iran, the AI impacts. And what’s happening is you have a supply / demand difference—and there’s less supply, there’s a lot of demand — so, we haven’t seen the volumes yet. But I’m optimistic mainly because when there is a need to do deals, deals will happen. And we’ll talk more about that in terms of what’s going to trigger that. But I do see optimism, ultimately, when things settle down on the macro front.

CHRIS MOYNIHAN (03:31):

And I’d love to unpack that a little bit because I feel like we’ve seen activity. Maybe it’s not your traditional sell-sides, but you’ve seen different strategies and ways to get liquidity — whether it’s continuation vehicles, minority deals, structured investments. So, there is some of that activity. Do you think that’s going to continue  this year or will you start to just see more regular sales as the macro environment improves?

SASH RENTALA (03:57):

It goes back to the GP and the LP relationship. LPs fund the GP so they can be in business, and LPs want their money back. In any way, they can. And what we talked about — the supply / demand imbalance with regard to the fact that these companies aren’t ready for sale just because rates are elevated — the performance of these companies have been good, but they haven’t been great relative to what the expectation was back five years ago. And that’s the key thing. So, they just need more time to gestate these businesses. So, what’s going to happen in the interim? We’re going to have alternative structured capital solutions, which is what you talked about — structured deals can return capital, debt refinancings to kick the can, continuation vehicles, which we’ll talk more about — so, there’s a lot of different levers; but in the end, that’s only a short-term solution because it doesn’t get enough capital back to LPs for them to say, ‘Hey, I have my money back and I want to redeploy the money into new funds.’ And that’s the balance that we need to get to. And I think it is coming over the next few years.

CHRIS MOYNIHAN (05:03):

Where are you seeing the activity today? Because…understood that, you know, on the demand side, there just isn’t as much activity for exits, but are there certain pockets or subsectors where you’re seeing increased exit activity compared to others?

SASH RENTALA (05:16):

Yeah. I mean, it is fascinating what’s going on because five years ago, everyone thought the assets they were buying were great assets and time would only tell. So, fast-forward five years and the market is definitely bifurcated. You have a small group — I would say it’s about 20–25% of the market — which we all classify as the A Asset. The A Asset was purchased at an elevated price five years ago with cheap capital, but they’ve overperformed, with regard to their performance and their management projections. What they said in the book five years ago, they exceeded it. Buyers today see that performance, and they see the future performance and they’re saying, ‘I will pay a lot for that asset because it’s a safe investment in an environment that is very uncertain. You’ve got the Iran war and all these other macro factors that they’re taking into consideration.’ However, the rest of the market is … and I hate the term B Asset, because I think these are good companies…The buyers purchase these assets at elevated prices and they haven’t performed to expectations, but they’re solid assets. So, ultimately, I think what’s happening today is this B Asset market is definitely stuck. And what’s happening is this LP – GP dynamic, where the LPs need the money back to reinvest, the GP wants to raise a new fund, and that’s when they start to say, ‘We got to sell these assets.’ And that’s starting to happen, but it’s a trickle. It’s not a big flood that’s coming, but I think that’s going to expand over the next few years.

CHRIS MOYNIHAN (06:47):

So, one of the big themes this year has been AI, which you touched on. And in public markets, we’ve definitely seen this shake out, where there’s been valuation resets, especially among big data companies; for example, where AI can be an incumbent challenge; or utilities, where AI can be a huge benefit. Is there a similar valuation reset among the private companies as well or the sponsor-owned companies? And how are sponsors in general thinking about the threats and opportunities of AI?

SASH RENTALA (07:13):

There is, but it’s too early to tell. You go into investment committee, they look at the business, they try to underwrite the risks. They underwrite the risks based on elevated interest rates. That’s all kind of quantifiable. Every private equity firm on Wall Street is now saying, ‘Well, what is the underwriting risk related to AI? Are we going to get disintermediated from the revenue perspective? But also, more importantly, or just as important, will these help me in terms of my margins?’ So, there’s a balance. Is it going to impact my revenues? Is it going to improve my margins? I think that will be a TBD over the next year, and it’s just another layer of quote-unquote uncertainty that they’re trying to figure out right now.

CHRIS MOYNIHAN (07:55):

So, as we continue to progress through the current macro challenges, what do you think that trigger or point will be where you’ll start to see sponsors get more comfortable and actually approach and go for the exits on some of the A Assets and then some of these B Assets as well?

SASH RENTALA (08:11):

It’s a great question. It’s the million-dollar question.

CHRIS MOYNIHAN (08:13):

Million-dollar question. Yeah.

SASH RENTALA (08:15):

The A Assets are going because this trillion dollars is out there and it needs to find a home. The A Assets are the safe bet, and folks — the buyers — would rather pay up, pay more, maybe even underwrite to a lower return to get safety. And it’s a flight to safety right now. The question on the B Assets is the question of the day. Quite frankly, I thought we would’ve started to see the B Assets start to trickle out a lot more last year. I do think the tariffs with Trump’s policies did hurt the second half. That’s kind of pulled over into the first quarter of this year, and now you have the war. I think what’s ultimately going to happen, I do think the war will get settled. Interest rates are expected to go down. And what I’m hearing — this is anecdotal — it’s a two-turn kind of differential between buyers and sellers. — could  be more, depending on the asset. It’s a very generic statement. But if you take two turns, if you get around 50–100 basis points decrease in interest rates, that’ll fill the gap. If you’ve got certainty in the economy, where there’s some growth, I think that’ll fill the gap. And then, ultimately, in many circumstances, the sellers are going to have to take a turn — a hit — to get the money back. And I think that’s where you see that supply / demand balance, and you get the buyers and sellers starting to do trades.

CHRIS MOYNIHAN (09:34):

Returning to continuation vehicles and maybe secondaries, broadly, you mentioned that CVs have become a very large portion of the market; a significant percentage of all exit activity. Can you talk a little bit about how they’ve become such a big percentage, and if you think that will sustain in 2026?

SASH RENTALA (09:52):

The secondaries market has boomed. The capital that would’ve gone to the primary market, which is new deals, has shifted to the secondaries market, because there’s a lot of GPs with portfolios that are quote-unquote stuck in the funds and they’re looking for solutions to get capital back. So, secondaries have been a great way to do that. I think there’s a couple of issues with secondary funds. One, they have a lot of capital, but almost every fund in private equity is at least one or two companies they’re trying to get into a CV vehicle to kick the can. There’s thousands of funds out there. When you add it all up, there’s a lot of deals that these secondary funds are looking at and they’re very, very picky. So, even though there’s a lot of capital, there’s a lot of deals, I think only the best deals that make sense are the ones that are going to get done, but I do think secondary funds are going to be here to stay. There’s going to be a certain percentage of those deals are going to get done via secondary, via continuation, vehicle. I think what’s going to be very interesting is… There’s going to be funds that can’t move the product. They can’t sell these companies and they may not be able to raise new funds. So, they’re kind of the quote-unquote zombie fund. I think secondary funds will step in, and they’ll take wholehearted all the portfolio companies at deep discounts and put them on the secondary books. There’ll be owners of these portfolio companies at deep discounts and there’ll be terrific returns. So, I think that’s going to happen over the next few years as well, where the secondaries not only just focus on CVs, but they’ll also focus on discounted almost portfolio of assets.

CHRIS MOYNIHAN (11:37):

So, taking a step back to the broader fundraising community, do you think that the volume of capital into private equity, in general, will continue to be the same and grow and that increasing portion will go to secondaries, and increasing portion will go to the top performing funds? Or how do you see that shakeout with zombie funds with all these different ways to deploy capital?

SASH RENTALA (12:00):

Yeah, look, I think there’s going to be continued interest and capital going to private equity. If over a long period of time, they do offer returns above the public markets. I think what’s going to be interesting is where does the capital go? And what I mean by that is, the large funds are getting more capital — the Blackstones of the world, the KKRs — they have the economies of scale, and what they’re doing is saying, ‘Hey, there’s a top performing middle-market fund or a growth fund that’s a lower middle-market fund. We want to build that strategy. Instead of home-growing it, having to build a track record, let’s just hire that team.’ So, I think you’re going to see a lot of the large caps get bigger, [and] consolidate the middle market. As you said, you have the top performers within middle market. If you’re a top performer anywhere, you’re going to get all the capital you need. So, those funds are getting more than they estimated that they wanted, so they’re getting — exceeding — their current fund and beyond. They’re going to do well. The key is that bottom half. That bottom half is going to, quite frankly, probably struggle. They’re not going to be able to raise either the fund size that they thought they would or not be able to raise it at all. They won’t be able to support the people that they have. So, you’re going to see a lot of movement in the middle market. The final thing that’s interesting… You have the big funds getting bigger, the lower middle market… You also have the fundless sponsor market. That used to be a really tough market. It used to be if you had a fundless deal, it was very hard to get capital. With these smaller deals, the return expectations are even higher; instead of 2X for middle market, you get 3X-plus. For these smaller deals, it’s more risk. But now there’s a ton of money going into lower middle market, into fundless, and also, family office. So, I think you’re going to have this bifurcated strategy with the middle market really taking a beating until they restructure, and the money’’s going to move up and down.

CHRIS MOYNIHAN (13:53):

I wanted to wrap talking about private credit, which we know is a close adjacent to private equity. It’s been in the headlines recently that some of the funds are experiencing increased redemptions — but I think what we’ve seen across clients is that there’s still ample financing, especially for those funds that want to do transactions. So, can you talk a little bit about what you’re seeing across the private equity community, and if you’re still seeing that support from the private credit markets?

SASH RENTALA (14:18):

It is a really challenging question to answer because you have today’s market — and, you know, post war, what does that look like? What I’ve been just talking to clients is: one, there’s enough private credit capital out there; so, if you have a good deal, you’’ll get capital for that deal. We are seeing a widening in pricing. So, the syndicated markets, for sure, have widened — I heard 50-100 basis points. Private credit by just correlation is going to widen as well, but that’s potentially a near-term issue. Certainly, the SaaS issues with private credit is causing a lot of issues with redemptions. So, yes, I think the private credit market is impacted. However, if it’s a good deal, what sponsors are going to do, private equity’s going to do, is we’ll just overcapitalize, we’ll put on less debt, we’ll wait two years, let the business grow, and then refinance at cheaper rates. It’s not going to stop them from doing good deals. Again, it’s those B Assets. Those are going to be the ones when you can’t get really good financing for B Assets, that’s going to lead to a slower exit of those B Assets.

CHRIS MOYNIHAN (15:24):

Sash, I appreciate all the insights. Really enjoyed the conversation and looking forward to talking more next time.

SASH RENTALA (15:30):

Great to be here.

CHRIS MOYNIHAN (15:32):

And to our listeners, thanks for tuning in. Be sure to check out solomonpartners.com for more sector-specific M&A insights.