Slowing EBITDA growth led to the lowest quarter-over-quarter growth in private company enterprise values in 2025; could this be a sign of things to come in 2026?
CHICAGO–(BUSINESS WIRE)–Lincoln International, a global investment banking advisory firm, announced today that the Lincoln Private Market Index (LPMI), the only index that tracks changes in the enterprise value of U.S. privately held companies, increased by 1.9% during the fourth quarter of 2025 driven by EBITDA growth as enterprise value multiples remained relatively flat. In comparison, the S&P 500 enterprise value growth was 2.3% over that time, largely driven by the Magnificent 7 as demand for AI-linked chips, cloud infrastructure, and software reached new highs in December 2025, which, notably, were erased in the first quarter of 2026. Excluding the Magnificent 7, S&P 500 enterprise value growth was more modest at 1.4%, primarily driven by broader macroeconomic optimism on the back of executed rate cuts and further expected rate cuts by the U.S. Federal Reserve throughout 2026, which would similarly benefit private markets.
The LPMI’s full year 2025 growth of 9.9% lagged the S&P 500 and S&P 500 excluding the Magnificent 7, which clocked in at 15.6% and 11.9%, respectively.
“Private company enterprise value growth in Q4 was consistent with the rest of 2025 in that the growth was driven by an increase in earnings,” noted Steve Kaplan, Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, who assists and advises Lincoln on the LPMI. “While private company enterprise value growth was less than that of the S&P 500 in Q4 and trailed the S&P enterprise value growth excluding the Magnificent 7 by just 2% in 2025, the LPMI’s growth was almost entirely on the back of earnings growth whereas as the S&P 500 had a larger degree of multiple volatility driving its performance.”
Private Market Competition Remained Hot in Q4
Buyout volumes and valuations for A-tier companies remained strong in Q4 2025 as these companies commanded higher enterprise valuation multiples compared to Q3 2025 and returned to, and in certain instances, exceeded, levels observed at the prior peak of the market in 2021. One anecdote of this trend was a deal that Lincoln’s M&A team advised on: Parker-Hannifin’s acquisition of Filtration Group from Madison Industries for $9.25 billion or 19.6x EBITDA, which was well above the average multiple observed by Lincoln in 2025, highlighting that market participants are looking for high-quality assets and are willing to pay a premium for them.
For attractive companies, sponsors have continued to write large equity checks and lenders have continued to compete on spread, original issue discount (OID), and leverage levels, stretching their limits in these areas to get deals done and capital deployed. These favorable trends drove the average buyout multiple up to 13.1x EBITDA, which is above the peak in 2021 and 2022, and leverage levels up to 5.2x, approximating the levels seen in 2021 and 2022 despite higher interest rates today. New issue terms for borrowers between $40 million and $100 million of EBITDA remain historically tight, with new issue unitranche spreads of S+4.50% and OIDs tightening to just 1% on average, with some deals having no OID at all.
On the back of this market competition and sponsors’ and lenders’ appetite to deploy capital, billion-dollar deals continue to take a larger share of the M&A market. Based on data from Lincoln’s proprietary private market database, billion-dollar deals comprised approximately one-third of acquisitions in 2025, up from 25% in both 2024 and 2021. Therefore, even as the quality of closed deals broadens, the pool of capital chasing these deals and the willingness of sponsors and lenders to compete on purchase prices and multiples and terms continues to increase.
Amidst the Competition, Private Company Performance Growth Slows
While capital market activity ended 2025 on a high note, looking ahead to 2026, one large factor to drive buyout volumes and valuations will be private company performance and outlook. While tariff impacts will likely be more muted than may have been initially feared post Liberation Day, many private companies are just now starting to see the impact of tariffs in their quarterly financial results and will imminently issue budgets for 2026 based on this insight into tariff impacts.
The percentage of private companies with EBITDA growth in the fourth quarter remained consistent at around two-thirds and the magnitude of EBITDA growth for the full year of 2025 of 4.7% was favorable to 2024 of 3.5%. However, looking back across 2025, the magnitude of EBITDA growth steadily slowed since the beginning of the year as year-over-year LTM EBITDA growth declined from 6.5% in Q2 to 5.2% in Q3 and 4.7% in Q4. While EBITDA growth remains positive, this slowing growth may explain why Lincoln observed leverage increases of ~0.5x from a deal’s inception to today across all vintages, likely driven by a combination of lower realization of synergies and limited free cash flow generation due to years of high rates.
“We have seen a steady slowing of EBITDA growth during 2025 and companies not being able to organically deleverage,” noted Ron Kahn, Managing Director and Global Co-Head of Lincoln’s Valuations and Opinions Group. “Notably, of the loans that remain outstanding from the 2019 and 2020 vintages, that growth in leverage is closer to 1.0x, the exact opposite of what you would expect. Many of these deals likely mature in the next two years and we estimate that around 30 to 40% of the deals maturing in the next two years have already extended their maturity once meaning that lenders either need to provide an incremental extension or potentially explore a restructuring if these deals cannot otherwise be refinanced.”
Direct Lending Market Competition Leads to Stable Valuations Despite Slowing Growth
The average fair value of loans tracked by the Lincoln Senior Debt Index (LSDI) decreased only 0.1% from Q3 to 99.0%. Aside from the trends already noted in new issue spreads and OID, lenders have continued to stretch on leverage to compete amongst themselves and the broadly syndicated loan (BSL) market, with larger borrowers seeing upwards of 0.5x of additional leverage, further enabled in part by the record buyout multiples.
While competition has kept fair values near their peak, performance headwinds dragged some loans down. While the covenant default rate remained flat since Q3 at 3.2%, amendment activity increased 13% quarter-over-quarter, with maturity extension and covenant holiday activity increasing 14% and sponsor infusion activity increasing 31%. Conversely, repricing amendment activity, often a sign of positive company performance, increased just 6%. This trend suggests that although lenders and sponsors remain supportive of portfolio companies, the signs of distress amongst underperforming portfolio companies are growing.
The covenant default rate is only one measure of stress and, to dig deeper into the health of the direct lending market, Lincoln did an analysis of PIK activity and determined that 11% of loans valued by Lincoln paid PIK interest in 2025. Importantly, this represents any magnitude of PIK interest (i.e., it may be a small partial PIK toggle or a full PIK election). The 11% represents an increase from 7% in 2021.
Further analysis showed that, of the 11% of loans with PIK interest, Lincoln determined that 58% of those companies had “bad PIK” interest, meaning these companies did not pay any PIK interest at initial transaction close (including loans that had a PIK toggle that was not utilized at inception), but now had some component of PIK interest, up 1% from Q3 and 23% since Q4 2021. Putting this all together, of the total population of loans in Lincoln’s proprietary private market database, 6.4% of loans had “bad PIK”, an increase from 6.1% in Q3 and 2.5% in Q4 2021. This “bad PIK” percentage can be viewed as a “shadow default rate” or a proxy for situations wherein there may have otherwise been a default if not for a PIK election given such elections are often made due to liquidity tightness. As further corroboration that this cohort of loans with bad PIK may be experiencing stress, the average increase in loan-to-value (LTV) was 36.7%, increasing from a healthy 39.4% at inception to 76.1% today, further demonstrating the stress of these borrowers.
However, interestingly, in Q4 2025, Lincoln estimated the total percentage of interest income paid in the form of PIK interest to be 8.3%. Although this represents an increase from 5.4% in the prior peak of the market in Q4 2021 after PIK usage surged in 2020 and 2021 due to the COVID-19 pandemic, it is important to note that the vast majority of interest income collected by lenders remained paid in the form of cash interest. Furthermore, throughout 2025 size weighted fixed charge coverage ratios increased from 1.1x to 1.3x and the weighted average percentage of companies with a fixed charge coverage ratio of less than 1.0x decreased to 21%, which is the lowest level since 2022. While on the one hand this indicates that companies demonstrated an improvement in their ability to service their principal and interest, on the other hand, it may have been due in part to this increase in PIK usage.
One final trend Lincoln observed in 2025 was a meaningful increase in instances of lenders taking control of a business from the sponsor, clocking in at $24.1 billion of debt foreclosed relative to just $13.6 billion in total in the preceding 3 years. Of those change of control transactions, nearly 75% related to 2021 and 2022 vintage deals.
Direct Lending Outlook for 2026
With these conflicting trends of record low spreads and slowing growth and pockets of stress, one may ask, what is in store for direct lenders in 2026? One measure, the declining price / NAV of publicly traded BDCs, suggests that some investors may be skeptical of the outlook for BDCs (and thus more broadly direct lending). While some of these fears may be due to idiosyncratic portfolio company specific shocks, which are not, broadly speaking, reflective of the entire direct lending market, other fears may be linked to the fact that amidst these record-tight spreads, rates continue to be cut and there may be further cuts on the horizon. Furthermore, given most loans are floating rate, asset level income and thus BDC dividends are directly impacted. To put a finer point on it, based on the LSDI, since 2016, direct lending yields peaked in Q3 2023 at 11.8% and have since decreased by over 2% to just 9.5%.
“Amidst this period of rising stress and compressing spreads, so far, direct lending has broadly proven an ability to weather these compounding headwinds,” said Kahn. “While returns continue to remain attractive, particularly for portfolios locked in with more favorable spreads from earlier vintage years, asset selection and active portfolio management will be critical for successful funds with a larger proportion of recent vintages that were underwritten to tighter spreads and higher leverage levels, as defaults on these deals will be more impactful given the lower level of interest income being generated.”
About the Lincoln Private Market Index & Lincoln Senior Debt Index
The LPMI is the only index that tracks changes in the enterprise value of U.S. privately held companies—primarily those owned by private equity (PE) firms. With the LPMI, PE firms and other investors can benchmark private companies’ performance against their peers and the public markets.
This index is differentiated from other indices as it 1) tracks enterprise values of private companies over time, 2) is based on valuations rather than executive surveys and 3) covers a wide sampling of companies across a range of PE firms’ portfolios.
The LPMI seeks to measure the variation in private companies’ enterprise values by analyzing the aggregate change in company earnings as well as the prevailing market multiples for approximately 1,800 private companies, each generating less than $250 million in annual earnings. The index is calculated using anonymized data on an aggregated basis by Lincoln’s Valuations & Opinions Group, which has distinctive insights into the financial performance of thousands of portfolio investments of financial sponsors, business development companies and private debt funds.
The methodology was determined by Lincoln in collaboration with Professors Steven Kaplan and Michael Minnis of the University of Chicago Booth School of Business. While other indices track changes to a company’s revenue or earnings, the LPMI is different in that it tracks the total value of these companies. Significantly, the large number of private companies used to create the LPMI helps ensure that the confidentiality of all company-specific information used in the index is maintained.
Further, in 2020, Lincoln launched the LSDI, which provides insight into the private credit market as a fair value index tracking the total return, price, spread and yield to maturity of private credit securities. The index is developed using much of the same data as the LPMI, and the methodology was determined by Lincoln in collaboration with Professor Pietro Veronesi of the University of Chicago Booth School of Business.
Important Disclosure
The Lincoln Private Market Index is an informational indicator only and does not constitute investment advice or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln Private Market Index. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln Private Market Index, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln Private Market Index has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.
About Lincoln International
We are trusted investment banking advisors to business owners and senior executives of leading private equity firms and their portfolio companies and to public and privately held companies around the world. Our services include mergers and acquisitions advisory, private funds and capital markets advisory, and valuations and fairness opinions. As one tightly integrated team of more than 1,000 professionals in more than 25 offices in more than 15 countries, we offer an unobstructed perspective on the global private capital markets, backed by superb execution and a deep commitment to client success. With extensive industry knowledge and relationships, timely market intelligence and strategic insights, we forge deep, productive client relationships that endure for decades. Connect with us to learn more at www.lincolninternational.com.
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