The return of the LBO in a selective market

Persistent macroeconomic volatility, geopolitical tensions and AI-driven disruption have all shaped the start of 2026. It has also marked the return of the leveraged buyout (LBO). 

The return highlights a notable shift in the European market. Following a peak in 2021, when LBO issuance reached €21bn, activity slowed materially as higher interest rates and macro uncertainty weighed on dealmaking. During 2024 and 2025, private equity sponsors faced increasing challenges in exiting investments within typical time horizons, which contributed to a rise in dividend recapitalisations as an alternative route to return capital to investors. Against this backdrop, investor caution remained elevated, particularly towards more aggressive high yield (HY) structures.

This dynamic has shifted in 2026, with LBO bond issuance currently at €4.5bn, and above the €4.1bn issued in the whole of 2025. Rather than a broad increase in deal count, the market has been defined by “fewer but larger” transactions, with average deal sizes materially higher than in prior years. This suggests a more selective environment, where only the higher-quality and better-supported deals can clear the market at scale.

The mega-LBO

This selective reopening is not confined to Europe. The same dynamic is also evident in global LBO markets. A clear example of this shift came from the $55bn take-private deal of Electronic Arts, which came to the market in March. The deal was financed with roughly $18bn of equivalent cross-border debt package across USD and EUR bonds and loans, making it the largest LBO of all time. 

Launched against a challenging backdrop, just two weeks into the Iran war and amid sector-specific uncertainty around AI, the transaction served as a test of market capacity. Demand proved robust, with order books reportedly surpassing $45bn (around 2.5x oversubscribed across bonds and loans). Pricing tightened significantly from initial guidance (~75 bp), and a further 75 bp on the secondary market.

In our view, several factors underpinned this outcome: the issuer’s established track record in public markets, the scale and quality of its portfolio, and the substantial equity contribution ($36bn) within the deal. The involvement of Saudi Arabia’s sovereign wealth fund PIF, also provided an additional layer of confidence. These factors allowed a deal with a relatively aggressive capital structure to attract strong demand, even in uncertain conditions.  

Looking ahead, the proposed merger between Paramount Skydance and Warner Bros. Discovery, valued at around $111bn, represents an even more substantial test for the market. The transaction is expected to include around $54bn of cross-border debt financing, spanning both investment grade (IG) and HY markets. Early demand indications are constructive, with the loan component already upsized, following strong demand. 

While the scale of the debt stack and associated interest burden warrants scrutiny, the deal shares similar supportive features with the Electronic Arts deal: globally recognised assets, significant scale (with combined revenues greater than$60 bn), a sizeable equity contribution of around $47bn. It also benefits from the presence of an owner in Larry Ellison, capable of providing support in a downside scenario.  

Carve-out opportunities

Beyond mega-LBOs, corporate carve-outs have also emerged as a theme in 2026. IG chemical giant BASF’s divestment of its Coatings business (acquired by Carlyle and the Qatar Investment Authority in May, with BASF retaining a minority stake) is a notable example. For BASF, the transaction allows for balance sheet preservation and rating stability amid ongoing pressure in the European chemicals sector. For HY credit investors, such transactions can offer exposure to high-quality, well-invested asset bases that may previously have sat within IG issuers. However, such opportunities require careful scrutiny, including the viability of the standalone businesses and the seller’s rationale for divestment.

Investor implications

Taken together, these recent developments point to a leveraged finance market that is open but remains selective. For investors, this suggests an improving opportunity set, but not a uniformly risk-on environment, , as selectivity remains critical. Transactions with scale, resilient asset bases, and meaningful equity cushions are positioned well to perform, particularly in an uncertain backdrop where investors are on the lookout for safe-haven assets. Rather than signalling a broad resurgence in risk appetite, the return of LBO activity in 2026 reflects a market that is disciplined but is still capable of absorbing size when the fundamentals are compelling.