Private equity faces 9-year backlog as software bets sour

Private-equity firms are sitting on about 13,500 unsold U.S. companies, a backlog that would take roughly nine years to clear at the current pace of exits.

Buyout firms face a worsening logjam of unsold portfolio companies as the so-called SaaS-Pocalypse slashes software valuations, with about 13,500 U.S. companies stuck in private-equity portfolios as of June 30, according to PitchBook data released Tuesday.

"The 2021 assets are probably the hardest ones to exit right now because of where the valuations were and are," said Darius Craton, director of private-capital advisory at Raymond James.

Nearly 4,000 companies have been held for six or more years, and about 1,500 for nine or more years, the data show. The backlog has expanded from roughly 13,300 companies at the end of 2025. While only about 1,200 of the 13,500 companies are in the software sector, they tied up an outsize portion of capital after being purchased at lofty valuations in 2020 and 2021.

The prolonged holding periods are squeezing limited-partner returns and slowing new fund formation. Fundraising in the first half of 2026 totaled $159.6 billion, on pace to roughly match 2025's $308 billion total, but the number of funds raising capital has fallen as commitments concentrate among a small group of large, established managers.

Many software companies in PE portfolios took on debt assuming pandemic-era growth rates would persist. When concerns about artificial intelligence's threat to the software industry — dubbed the SaaS-Pocalypse — slashed valuations of comparable publicly traded companies earlier this year, exit options narrowed further. Firms are reluctant to sell at steep discounts to their purchase prices, a PricewaterhouseCoopers analysis of the PitchBook data found.

Firms have turned to the secondary market and continuation vehicles, which give fund investors a chance to cash out while allowing the sponsor to retain control of the asset. These structures have become a primary tool for managing the backlog, though they can mask the true extent of unrealized losses.

IPO market offers a partial outlet

One potential bright spot is the IPO market, which is showing signs of revival after years of dormancy. Private-equity firms took 16 companies public in the first half of 2026, raising $10.1 billion — the most in any six-month period since the market cooled at the end of 2021, according to Preqin. Last week, Bending Spoons, a technology company that acquired brands including AOL, raised $1.68 billion and saw its shares jump 40% in its stock-market debut.

"You need to have an IPO market that is coming back to health because otherwise it feels a little bit like kicking the can down the road," Craton said.

Many of the notable IPOs this year have involved AI-focused companies or those in the defense sector, suggesting the market is selective about which PE-backed assets it will absorb. The backlog of older vintages — particularly the 2021 cohort bought at peak multiples — may require deeper discounts or creative deal structures to clear.

The last time the PE industry faced a backlog of this magnitude was after the 2008 financial crisis, when firms held assets for an average of 6.5 years before exiting, according to PitchBook data. The current 9-year clearance estimate suggests the overhang is more severe, driven not by a single macro shock but by a structural shift in how software companies are valued in the age of AI.

This article is for informational purposes only and does not constitute investment advice.