Welcome to this week’s edition of The Private Capital Compass, a curated weekly analysis from Private Capital Global designed to cut through the noise and surface what matters most and what it means for investors and operators.

This week, the market narrative is less about inflection points and more about adaptation. Across private equity, private credit, and strategic M&A, capital is moving again but with discipline, sharper filters, and a heightened focus on execution risk. Momentum has returned, yet it remains grounded by sober underwriting, operational realism, and a recognition that uncertainty is no longer cyclical.

In this edition, we examine how sponsors are adjusting to that reality. We explore why 2026 is shaping up as a year of steady deal flow rather than an exuberant rebound; how buyers are rewriting the growth test amid tighter leverage and higher expectations for proof; and why value-creation plans are finally being stress-tested for execution credibility, not just investment committee appeal. 

We also examine private credit’s quiet resilience through a volatile year, the concentration of technology M&A around fewer, larger AI-driven bets, and what a $2B+ aviation services exit signals about improving exit conditions for scaled industrial assets. We close with a deeper examination of leadership diligence as a decisive source of differentiation in an environment where financial engineering has diminishing marginal returns.

Compass Points

PCG’s Recap and Take on the Stories of the Week

• Momentum Without Euphoria, How PE Learned to Operate Through Uncertainty:  CBIZ’s 2026 outlook frames the current private equity environment less as a cyclical rebound and more as an accumulation of momentum. While early expectations for a sharp M&A resurgence in 2025 were tempered by policy uncertainty and stalled exits, the year ultimately ended with improving deal activity and clearer exit trajectories. The defining takeaway, according to CBIZ, is not that uncertainty faded, but that sponsors adapted, finding ways to transact despite it. Heading into 2026, deal activity is being supported by steady tailwinds rather than a single catalyst. Easing interest rates, narrower bid–ask spreads, improved financing conditions, and significant dry powder are creating a more functional transaction environment. As traditional exits reopen, CBIZ expects reliance on continuation vehicles to moderate from 2025 highs, with platform buyouts regaining share relative to add-ons. Strategic buyers are also expected to re-engage, particularly in the middle market, where assets are more digestible and valuation expectations have reset. At the same time, leverage remains disciplined, placing greater emphasis on equity underwriting and operational execution.

  PCG Take: CBIZ’s outlook reinforces a key theme we continue to see across the market: momentum has returned, but exuberance has not. Sponsors are moving forward with clearer eyes, accepting uncertainty as a constant rather than a constraint. That mindset is reshaping how capital is deployed, how exits are sequenced, and how portfolios are managed. The two-speed exit dynamic is particularly telling. Accelerating exits for top-performing assets is less about market timing and more about portfolio strategy, generating liquidity, driving realizations, and supporting fundraising in a selective LP environment. Meanwhile, extended holds on weaker assets increase operational strain and amplify the importance of hands-on value creation. Just as important, disciplined leverage is forcing a more fundamental shift in return generation. With financial engineering capped, execution quality, leadership effectiveness, and speed of value realization matter more than ever.

• How Buyers Are Rewriting the Growth Test: Grant Thornton’s January 2026 analysis highlights a subtle yet meaningful shift in private equity buyers' behavior. Capital remains available, and deal processes are active, but investment committees are underwriting growth in very different ways than in prior cycles. The emphasis has shifted from narrative-driven expansion stories to demonstrable, explainable performance under realistic ownership conditions. Buyers are asking not whether a company is attractive in theory, but where growth actually comes from, how resilient it is, and which levers will move under tighter capital structures. Higher rates and more conservative leverage assumptions have sharpened this discipline. Assets clearing the market tend to show durable cash flows, pricing power, and margin structures that hold up beyond peak conditions. Growth is still central, but it must be earned through execution. Exit outcomes, Grant Thornton notes, increasingly reflect asset quality and operational credibility rather than market timing.

• PCG Take: This signals not a risk-off market, but a credibility-driven one. Buyers are still leaning in, just with sharper filters. For sponsors, this reinforces the importance of building value creation plans that translate cleanly from diligence to execution. Technology, including AI and automation, matters when it shows up in operating metrics, not when it lives in a roadmap. Similarly, exit readiness is increasingly underwritten well before a process begins; assets that can articulate where margin expansion and growth come from, backed by evidence, retain optionality even in selective markets.

• From Value Creation Theater to Value Creation Discipline: John Kelleher of CVC’s January 2026 framework, Ten Tests of a World-Class Private Equity Value Creation Plan, offers a hard-nosed diagnostic for separating credible execution roadmaps from aspirational slideware. Drawing on two decades of experience as a CEO, operating partner, and board director, Kelleher argues that most VCPs fail not because of ambition but because of flawed foundations. His ten tests expose where plans typically break down: insufficient independent diligence, weak root-cause analysis, poorly defined momentum baselines, and an overreliance on top-down assumptions disconnected from operational reality. Mr. Kelleher emphasizes that best-in-class transformations are front-loaded, with 50–80% of value achieved on a run-rate basis by the end of the first “Golden Year.” Equally critical is the Bottom-Up Roadmap, which requires broad organizational involvement, granular initiative ownership, and sequencing that reflects real capacity constraints. The final test, the Execution Machine, underscores that sustained value creation requires institutional infrastructure, not heroics. Without a central operating cadence, financial reconciliation, and clear accountability, even well-designed plans fail to convert intent into results.

  PCG Take: Kelleher’s framework reinforces a reality many sponsors privately acknowledge: most value creation plans are designed to underwrite deals, not to run businesses. They read well in ICs but degrade quickly once exposed to operating complexity, organizational limits, and leadership bandwidth. The tests highlight a structural gap between how value is modeled and how it is actually delivered. What stands out most is the implicit leadership and organizational maturity requirement embedded across all ten tests. A VCP that passes the Fresh-Eyes, Leadership Fit, and Execution Machine tests assumes a management team capable of absorbing transparency, operating at speed, and making trade-offs under pressure. In practice, many portfolio companies are asked to execute industrial-scale transformation plans without the leadership depth, systems, or cultural readiness to sustain them. The result is initiative sprawl, delayed impact, and sponsor intervention six to twelve months too late.

• Private credit under pressure, but under control: Proskauer’s 2025 review frames private credit restructuring as a test of endurance rather than a breaking point. Despite tariff-driven volatility, stalled public debt markets early in the year, and headline-grabbing Chapter 11 filings, private credit largely avoided a systemic downturn. Defaults remained steady, restructurings stayed predominantly out of court, and lenders demonstrated flexibility in navigating stress through extensions, refinancings, sponsor capital infusions, and change-of-control transactions. A defining feature of 2025 was the industry’s preference for consensual solutions. Out-of-court restructurings continued to dominate, allowing lenders to quickly de-lever balance sheets while avoiding the costs and uncertainty of bankruptcy. Sponsor support played a critical role, with equity infusions and structured rescue capital frequently used to stabilize companies with viable operating fundamentals. At the same time, the lines between private credit and the broadly syndicated loan market continued to blur as club deals grew larger, documentation became more flexible, and bank–private credit partnerships expanded.

  PCG Take: The industry’s resilience in 2025 stems less from benign conditions and more from structural advantages: tighter lender groups, stronger sponsor alignment, and a willingness to engage early when credits wobble. That said, the convergence with BSL markets is a double-edged sword. Larger club deals, secondary liquidity, and looser documentation may improve scalability, but they also introduce risks private credit has historically sidestepped, most notably liability management tactics and creditor fragmentation. While true “creditor-on-creditor violence” remains unlikely in the near term, the rise of deal-away structures should put lenders on notice that relationship-driven discipline cannot be taken for granted at scale.

• Technology M&A Concentrates Around Scale as AI Rewrites the Playbook: Technology M&A is undergoing a structural shift: fewer deals, far larger checks, and a rising emphasis on strategic transformation over incremental growth. While total tech M&A value fell 17 percent year over year in 2024 and deal count dipped modestly, median deal sizes more than doubled as acquirers prioritized scale, infrastructure, and immediate capability-building—particularly around AI, semiconductors, and cybersecurity. The AI revolution sits at the center of this change. Massive capital requirements for compute, data centers, and advanced chips are pushing technology leaders toward concentrated acquisitions that deliver instant competitive advantage. Blockbuster transactions exceeding $30 billion have become more common despite macro uncertainty, signaling that strategic urgency is outweighing cyclical caution. Smaller, application-layer companies continue to innovate, but the market increasingly resembles a two-tier ecosystem: scaled platforms with balance-sheet strength on one end and VC-backed specialists positioning themselves for acquisition on the other.

  PCG Take: This shift toward fewer, larger technology deals reflects a broader truth about today’s market: AI has compressed strategic timelines. Buyers are no longer acquiring optionality—they are acquiring survival capabilities. That reality favors scale, balance sheet strength, and the ability to absorb integration risk, which helps explain why megadeals persist even as overall volumes soften. For private equity, the opportunity is clear but narrower than it appears. Roll-ups and take-privates remain compelling, particularly in software and IT services, but value creation increasingly hinges on post-close execution rather than financial engineering. Integration discipline, leadership stability, and cybersecurity rigor now matter as much as entry multiple. The data showing widespread employee disruption post-transaction should be a warning sign for sponsors underwriting synergy timelines too aggressively.

Deal Spotlight: GenNx360 Capital Partners Exits Precision Aviation Group at $2B+ Valuation

Transaction: VSE Corporation announced the acquisition of Precision Aviation Group (PAG), a portfolio company of GenNx360 Capital Partners, in a transaction valued at $2.03B in cash and equity. Under the terms of the agreement, VSE will pay $1.75B in cash and approximately $275M in equity consideration. The deal also includes up to $125M in contingent earnout consideration, payable in either cash or equity at VSE’s discretion, tied to PAG’s adjusted EBITDA performance in 2026.

Headquartered in Atlanta, Georgia, PAG is a global provider of aviation aftermarket parts distribution and maintenance, repair, and overhaul (MRO) services. The company operates across 29 locations worldwide and employs more than 1,000 people. PAG expects to generate approximately $615 million in adjusted revenue for the fiscal year ended December 31, 2025, reflecting strong demand across commercial, business, and government aviation markets.

Why It Matters: For VSE, the acquisition materially expands its aviation services footprint and positions the company as a scaled, vertically integrated player in the global aviation aftermarket. For GenNx360, the transaction represents a successful exit from a long-held industrial services investment, monetized through a strategic buyer rather than a sponsor-to-sponsor sale or public offering.

This transaction sits squarely within the broader industrials and manufacturing ecosystem, specifically the aviation aftermarket and MRO segment, a subsector that has become increasingly attractive to private equity and strategic buyers alike. Aviation services combine recurring revenue, long asset lifecycles, regulatory barriers to entry, and mission-critical operations, making them a natural fit for operationally focused investment strategies. The sale of PAG highlights several important market dynamics: 

• Industrial and manufacturing remain hot: this deal underscores the durability of industrial services platforms that are tied to installed bases rather than new asset production. In an environment where OEM demand can be cyclical, aftermarket services provide predictable cash flows and resilience through economic fluctuations.

• Exits showing signs of improvement: The transaction signals early movement in exit markets for scaled industrial and manufacturing assets. While broader exit activity remains constrained, high-quality platforms with demonstrated earnings power, global scale, and operational complexity are increasingly able to attract strategic buyers willing to transact at meaningful valuations. The inclusion of earnout consideration tied to future EBITDA performance reflects a market still negotiating price discovery, but it also suggests growing confidence in forward operating fundamentals.

• The buyer profile matters: This is a strategic acquisition by a public company, not a sponsor-to-sponsor transfer. That distinction is important. As exit markets begin to warm, strategics are likely to play an outsized role in unlocking liquidity for private equity-owned industrial assets.

Deep Dive: Leadership Diligence Is the New Competitive Advantage

Across market cycles, the majority of underperforming investments can be traced not to capital structure or strategy, but to execution failures rooted in people risk. As market conditions tighten and operational complexity increases, leadership quality is a primary driver of operational alpha. Recent insights from our conversations with Keri Laine and Joe Carbone reinforce a growing consensus across the industry: leadership diligence must evolve. As Laine notes, the majority of failed deals stem from talent and leadership breakdowns. What remains inconsistent is action, specifically, the application of rigor, data, and intentionality to leadership underwriting.

Execution Is the New Differentiator

Leadership shortcomings surface quickly. Integration missteps, stalled transformations, cultural friction, and early forecast misses place immediate pressure on boards and sponsors. The gap between an average outcome and an exceptional one is rarely determined by deal structure; it is determined by how effectively leaders execute under constraint. Leadership performance, however, is highly contextual. Joe Carbone’s observation that leadership effectiveness is often “masked by favorable tailwinds” speaks to a critical flaw in traditional assessment models. Executives who performed well during periods of market expansion may struggle when those tailwinds disappear. The question is no longer whether leaders can operate within a PE-backed environment, but whether they have demonstrated resilience through volatility, ambiguity, and organizational stress.

The Limits of “PE Experience”

For years, prior private equity experience served as a proxy for predictability. Executives who understood sponsor expectations, reporting cadence, and governance norms were considered lower risk. That heuristic is increasingly unreliable. Experience gained during the financial engineering era does not necessarily translate to success in a market defined by operational complexity, slower growth, and tighter margins. What matters more today is evidence of operational scar tissue. Leaders who have navigated carve-outs, turnarounds, integrations, and restructurings bring pattern recognition forged under pressure. Their value lies not in familiarity with PE processes, but in demonstrated adaptability when conditions deteriorate.

Reframing People Risk

Despite broad acknowledgment that leadership failures drive deal underperformance, people risk remains underweighted relative to deal risk. Talent gaps are frequently assumed to be addressable post-close or manageable within the normal course of ownership. In practice, this defers risk to the moment when organizations have the least flexibility to absorb it. The challenge is partly perceptual. Leadership risk is often viewed as intangible. Yet as Laine observes, avoiding engagement because something feels abstract does not eliminate the risk; it simply delays its recognition until the cost is materially higher.

Directional Diligence: A More Realistic Model

An emerging evolution in leadership underwriting is directional diligence. Rather than asking whether a leader is “good” or “bad,” this approach evaluates alignment: given the investment thesis, timeline, and constraints, is this leader more likely to accelerate value creation or introduce friction? This mirrors how investors already assess deals with imperfect information, but with clear assumptions. Directional diligence does not seek certainty; it seeks clarity. It enables sponsors to make informed trade-offs before close, rather than discovering misalignment after integration is underway.

Hiring Is the Start, Not the Finish

Another persistent misconception is treating hiring as a discrete event. Once an executive is placed, focus often shifts back to financial KPIs, leaving leadership dynamics largely unmanaged. This assumption is costly. Hiring marks the beginning of value creation, not its conclusion. Early alignment on expectations, decision rights, pace, and communication cadence materially influences outcomes. Most advisory interventions occur after trust has eroded and performance has slipped. Compressing time-to-impact requires proactive alignment, not reactive correction.

Making Culture Measurable

Finally, culture and relationships are increasingly quantifiable. Modern frameworks allow firms to assess leadership behaviors, team cohesion, and cultural alignment with the same seriousness applied to financial metrics. As Laine notes, culture functions as an operating system, it governs execution velocity, retention, and innovation. Measures such as “return on relationships” capture relational capital as a leading indicator of execution risk.

As financial engineering yields diminishing returns, leadership has emerged as one of the few remaining sources of durable differentiation in private capital. Sponsors should begin by elevating leadership risk to the same level of scrutiny as deal risk during IC discussions. Are assumptions about management teams explicit or implicit? Is leadership alignment with the value creation plan being evaluated directionally, or deferred until after close? Firms should also reassess how they define “experience.” Rather than relying on PE exposure as a proxy for predictability, the more relevant question is whether leaders have demonstrated effectiveness through disruption, integration, and operational stress. Scar tissue, not familiarity, is the better signal in today’s market. 

Post-close, hiring should be treated as the starting line of value creation. Early alignment among investors, boards, and management teams can materially compress time-to-impact and reduce downstream intervention. Waiting for performance breakdowns to address leadership issues is a reactive posture that limits optionality. Sponsors should consider whether they are measuring what actually drives execution. Culture, trust, and relational capital increasingly function as leading indicators of performance risk. Making these elements visible and measurable allows firms to identify friction before it becomes failure.

Closing Remarks

Thank you for reading this week’s edition of The Private Capital Compass. Throughout 2026, PCG will convene investors, operators, and advisors through a growing slate of curated events in Austin, Boston, Chicago, London, New York, and San Francisco, each designed to move beyond surface-level discussion toward practical insights, peer exchange, and real-world application.

Our mission remains consistent: to deliver clear-eyed analysis, relevant intelligence, and informed perspective that helps private capital professionals translate market signals into durable value across deals, portfolios, and platforms.

We appreciate your continued engagement and look forward to navigating the year ahead together.

PCG Resources

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