The technology sector accounted for more than half of the total decline.
For the first time since records began, the value of European private companies fell by 1.3 percent in Q1 2026, according to the European Lincoln Private Market Index (PMI) by advisory firm Lincoln International.
The decline is primarily driven by fears around artificial intelligence (AI) in the tech market, even as underlying profit growth remains positive.
Tech sector as the main culprit
The technology sector, which represents 15 percent of the index, was responsible for over half of the total drop.
Software companies in particular saw their valuations plummet by 8.3 percent, not due to poor performance, but because investors are willing to pay less for these types of businesses (lower valuation multiples).
The rapid rise of AI has created uncertainty about the future of traditional software and SaaS companies. Despite the decline, private companies still outperform publicly listed ones.
Small companies outperform large ones
Small businesses (EBITDA < €30 million) fared better than large ones: their profit growth offset lower valuations.
Large companies – especially the three biggest software firms in the index – saw their valuations drop by an average of 8.6 percent.
Credit market: cautious optimism
While covenant default rates declined (from 1.8 to 1.5 percent), warning signals remain:
• More companies are not paying cash interest but adding it to their loans (PIK interest), a sign of financial stress.
• Lenders are becoming more selective, particularly in the tech market.
Future: a cautious outlook
The market is growing more discerning, especially in sectors vulnerable to AI disruption. However, underlying fundamentals remain robust, with positive profit growth.
"What we’re seeing is growing divergence: strong companies are performing well, but valuations are adjusting to long-term uncertainty", says Nick Baldwin, Lincoln International
