Private Market Volatility – What are the Implications?

Release date March 9, 2026

Given current macroeconomic conditions and recent volatility in the software sector, Lincoln International’s Valuations & Opinions Group (VOG) believes it is important to share with our clients our perspective about the current state of the US and European private capital markets.

As we have frequently discussed with clients—and as evidenced in the Lincoln Private Market Index (LPMI)—private company enterprise value multiples are correlated with public markets but exhibit lower volatility. This is also true in the private debt markets, as reflected in the S&P Lincoln Senior Debt Index. This dynamic is an important consideration in our enterprise and debt value conclusions for the quarter ending March 31, 2026.

There are two large primary forces currently influencing valuations:

AI-driven disruption and risk repricing in software and adjacent sectors; and,
Rising energy prices resulting from geopolitical conflict.

Both are affecting enterprise value, equity value, and credit spreads—though with varying magnitude across sectors.

The Impact of AI and Energy Relative to Enterprise Value

Throughout the quarter ending December 31, 2025, there was evidence of a Technology slowdown. As examples:

As indicated in Table 1, the S&P Software & Services Select Industry Index declined by 5.3% in the quarter, which erased prior gains and led to a decline of 1.0% for the 2025 calendar year; and,
As indicated in Table 2, the Technology sector also observed the lowest quarterly return within the Lincoln Private Market Index, a private market index that measures changes in enterprise value fair value with a quarterly return of only 0.6%.

Importantly, public market declines accelerated significantly in the first quarter of 2026. While private markets typically lag public markets and exhibit lower volatility, this magnitude of public repricing cannot be ignored in our first quarter valuations.

Software Sector Weakness Accelerated in 2026

As shown in Table 1, the performance declines across the software space further accelerated in the first quarter of 2026, with public enterprise values declining approximately 20% to date.

Table 1: Public Software Indices for the Quarters Ending December 31, 2025 and March 31, 2026 (YTD through March 4, 2026)

Table 2: Lincoln Private Market Index – Results for the Quarter and Year Ending December 31, 2025

AI and Its Impact on Enterprise Value: Why Software Valuation Has Become More Complex

AI’s disruptive potential is not yet materially reflected in near-term financial performance and most AI-impacted companies are not expected to experience significant cash flow deterioration in 2026. However, valuation is forward-looking and the speed and non-linearity of technological change increase the risk of faster-than-expected enterprise value declines.

The current sell-off reflects:

Concerns over the medium- to long-term durability of certain business models;
Increased uncertainty around competitive moats; and
The speed and non-linearity of technological change.

As a result, enterprise value multiples are compressing despite trailing and near-term cash flows remain stable.

AI is Not Uniformly Negative

AI’s impact varies significantly by business model. Each business model needs to be evaluated on a case-by-case basis to understand the potential impact.

Companies best positioned to withstand AI-related pressure typically have:

Embedded AI capabilities that enhance product functionality;
Opportunities for structural cost reduction;
Proprietary or differentiated data assets;
High switching costs or deeply embedded vertical solutions; and,

Such businesses may maintain stable valuations—or even benefit from premium multiples.

Conversely, companies whose products face commoditization or functional substitution risk may encounter existential pressure and accelerated multiple compression.

Observed Private Market Impact

Based on Lincoln’s valuation work for portfolio companies during the two months ended February 28, 2026 (the date of this publication):

Medium-to-high AI-exposed companies have experienced enterprise value declines of 10% to 15%— roughly half the magnitude of the public software decline
Low-to-medium AI-exposed companies have experienced enterprise value declines of 5% to 10%; and
Companies facing more severe disruption risk have experienced steeper declines.

This dispersion reinforces the need for case-by-case analysis rather than sector-wide assumptions.

Energy Prices and Enterprise Value

If navigating the valuation impact of AI wasn’t enough, the Iran conflict has had an immediate negative impact on the flow of oil and gas through both the Strait of Hormuz and the Suez Canal.

Approximately 20% of daily global oil supply flows through the Strait of Hormuz, where shipping has largely ceased since February 28, 2026.
Up to 30% of global LNG volumes are exposed to regional geopolitical risk, affecting supply to Europe and APAC.
Oil prices have increased from the mid-$60s to high-$70s per barrel, with Brent trading at an approximately $6 premium to West Texas Intermediate.

Implications for Valuations

Higher energy prices affect companies differently:

Energy-intensive and commodity-dependent industries face near-term margin pressure;
Businesses with pricing power may partially offset cost increases; and
The long-term inflationary impact depends on the duration of the conflict.

At present, we believe oil-related valuation pressure is meaningful but less severe than AI-driven repricing within highly exposed software businesses.

Impact on the Private Credit Market

Broadly Syndicated Loan (BSL) Market

While the gap between software loan and non-software loan values had been widening for some time, this gap expanded dramatically in 2026. Broadly syndicated software loans are trading at approximately 88% of par, compared to approximately 95% for the broader market.

Although software loans comprise over 15% of the syndicated market per Pitchbook LCD, there may be more software businesses classified as other service companies suggesting the exposure of software may be greater. Regardless, software loans are not spread equally across the market and are far more concentrated amongst lower credit rating categories. Over one-third of B- credits are software loans, whereas software loans represent less than 10% of credits rated B+ or higher, as shown in Table 3. This concentration has amplified spread widening within lower rating categories.

Table 3: Percentage of Software & Services within the Broadly Syndicated Loan Market – by Narrow Credit Rating

As of March 3, 2026, all BSL spreads, except for the BB- rating, have widened, as shown in Table 4a.

Table 4a: BSL Spread Changes by Narrow Rating

Footnote: CCC+ and CCC spreads represent calculations by Lincoln derived from Pitchbook LCD data whereas all other datapoints represent raw data per Pitchbook LCD

Table 4b: BSL Spread Changes within the B- Loan Rating Category

Given the higher concentration of software companies within the B- rating, spreads within this narrow rating have been the most adversely impacted, increasing by over 120 basis points from December 31, 2025 to March 3, 2026. Breaking this down:

B- software loans spreads have increased over 200 basis points; whereas
B- non-software loans, our best estimate is that spreads have widened by approximately 60 basis points.

Beginning February 2026, to reflect non-software loans’ value changes, Lincoln applied a favorable adjustment to non-software loans rated B- and below to account for this dislocation for valuations. As noted above, non-software spreads are still wider to start the year but not as much after eliminating the outsized impact from dislocated software spreads.

Market participants consistently report a “risk-off” posture toward AI-exposed credits. Given existing sector exposure, lenders are unwilling to increase allocations, leading to diminished demand and weaker secondary pricing. Demand for software loans is quite low or even non-existent, and the lack of investor demand and observable transactions further reinforces our conclusion that spreads have widened.

US Private Credit Market and European Credit Markets

In contrast to the BSL market, private credit dynamics are more nuanced as evidenced by the S&P Lincoln Senior Debt Series, which exhibits lower volatility relative to the BSL market.

Table 5: US Private Credit Market Spreads – March 3, 2026

Competition remains strong and the demand for loans is no longer confined to “A-tier” credits. Capital deployment pressures have led to:

Spread tightening in non-AI-impacted sectors; and
A modest increase in the leverage capacity, particularly for smaller borrowers.

Accordingly, Lincoln has:

Tightened senior and junior spreads by 25 basis points for companies with EBITDA below $15 million;
Increased leverage capacity for companies with EBITDA below $40 million; and
Tightened subordinated debt yields by 50 basis points for smaller borrowers, reflecting declining Secured Overnight Financing Rate and competitive dynamics.

While some lenders express reluctance to compress spreads further amid uncertain Business Development Company earnings, competitive pressures continue to drive pricing flexibility through leverage and Original Issue Discount structures.

European Private Credit Market

Table 6: European Private Credit Market Spreads – March 3, 2026

Whilst lending activity remains ongoing for deals in market, pipelines and timeline to bring new deals to market are being evaluated as investors consider the impact of AI disruption, economic policy changes, and geopolitical risk.

As a result of this, Lincoln has maintained all assumptions in the current period.

The Structural Effect: Declining Enterprise Value Reduces Debt Capacity and Increases the Cost of Debt

For medium-to-high AI-exposed and energy-impacted businesses, enterprise value declines have a direct credit implication. As enterprise value falls:

Market participants require a consistent or potentially higher equity cushion;
Meaning loan-to-value ratios rise; and,
Debt capacity declines.

This mechanical relationship increases effective credit risk even if cash flow remains stable. In other words, the cost of debt increases as loan-to-value rises and enterprise value falls.

Conclusion: Q1 2026 Valuation Outlook

Enterprise and Equity Values

While the S&P 500 was essentially unchanged from January 1, 2026 through March 3, 2026, there has been enormous dispersion both by companies within the same industry and across industries.

AI disruption risk is driving multiple compression in exposed business models.
Public software-focused indices have declined nearly 20% in Q1 2026.
Oil-dependent businesses face margin pressure from higher input costs.
Companies with limited AI exposure and lower energy sensitivity are primarily affected by idiosyncratic fundamentals.

Private market enterprise value declines have been more moderate than public markets but are directionally consistent with AI-exposed companies’ enterprise values declining by 5% to 15%+.

Credit Values

Credit value impacts are highly sector-dependent:

Loans to AI-exposed businesses have experienced meaningful fair value declines.
The magnitude of credit impact depends on:
- Business performance and KPIs;
- Loan-to-value changes;
- Degree of AI disruption exposure or an inability to offset higher energy prices; and,
- Capital structure positioning.

At the same time, private credit remains competitive in non-disrupted sectors, with tightening spreads and increased leverage in certain borrower segments.

Lincoln’s Valuations & Opinions Group continues to monitor developments across public and private markets and incorporate observable market participant behavior into our valuation analyses.

If you have questions regarding the impact of these dynamics on your portfolio, please contact your Lincoln relationship team.