Q3 brought stability to DACH private equity: PE deal count held steady, deal value normalized after the TK Elevator exit, and PE exits rose by 29%. Despite two ECB rate hikes and a widening valuation gap, the ingredients for a strong finish to the year are in place.

Executive Summary:

• Q3 2026 showed resilience: DACH PE deal activity stabilised in a challenging market environment, and exits rose 29% compared to the previous quarter.
• DACH Software M&A remained selective in Q3 2026: mission-critical vertical SaaS still attracts strong interest, but with AI claims and compliance under close scrutiny.
• The European debt market was subdued in Q3 2026: inflationary pressure, elevated financing costs and slowly recovering direct lending volume made for a difficult borrower environment.
• In our Partner Interview, we sat down with with Arno Poschik, Founding Partner at Maguar Capital, to discuss regulatory tailwinds, AI-driven value creation and the growing valuation gap. Read the full conversation here.

1. Private Equity Market Update: DACH

Q3 2026 Review:

DACH PE deal activity stabilised in Q3, as forecast. The number of PE deals declined only slightly, from 81 in Q2 to 78 in Q3 (down 4%). Deal value fell to €17.0bn, but excluding the TK Elevator sale to Kone in Q2, Q3 value was 2.5x the prior two quarters.

The YTD deal count currently stands at 237, falling short 8% compared to 258 deals YTD 2025, but only 2% compared to 242 deals in YTD 2024. Deal value YTD through Q3, however, is up €10.1bn in comparison to 58bn in Q3 2025.

Total M&A deal count declined from 793 in Q1 to 691 in Q2 and 632 in Q3, while PE deal count held up. These two developments prompted a rise in PE deal share from 9,8% to 12,3% across the same time period.

PE exit activity behaved somewhat differently. The number of exits rose sharply from 28 in Q2 to 36 in Q3 (+29%), which may be a tentative sign, that PEs come into the desired exit mode. Nevertheless, this thesis needs to be verified by PE exit activity over the next quarters. In Q3 2025 was also a peak in PE exit activity, but this was mainly driven by a backlog due to tariff uncertainty in H1 2025. For now, this year’s YTD exit count trajectory matches that of 2025 (with 95 vs. 96 exits).

Exit value fell from €36.0bn in Q2 to €6.7bn in Q3, as the €29bn sale of TKE also left its mark on the exit side in the second quarter. Even so, Q3 exit value was more than double that of Q1.

Given stable deal activity and a rising number of exits, we are cautiously optimistic about DACH private equity for the final quarter of 2026.

Outlook Q4 2026:

Three factors could boost deal activity in the final quarter of 2026:

1. Sponsor sentiment: In our discussions with Private Equity over the last quarter, the picture is bifurcated. A few investors had a quiet summer, others are seeing more deals launch. Indeed, we see an uptick in deals coming to market, and our Carlsquare pipeline of ongoing and upcoming deals, both founder- and sponsor-backed, looks very promising.
2. Successful fundraising: LPs display their trust in the asset class and show their appetite to invest. After global PE fundraising fell 6% over the previous two years, it is beginning to recover, particularly in Europe. Per Gain’s “State of Private Equity Fundraising Report”, the European share of fundraising rose 6% YoY, while the North American share fell 4%. One reason for this pull may be the uncertain political environment in the US.
3. Deployment pressure: Dry powder, LP pressure for distributions and lengthening holding periods, which we highlighted in the previous edition, remain relevant in shaping deal activity.

However, the expected rise in deal activity could be dampened by two factors in particular:

1. Rising financing costs: The ECB held its deposit rate at 2.00% through winter and spring, then raised it twice by 25 bp, in June and September, to 2.50%, and left the rate unchanged in their latest October update. The energy-driven inflation shock from the Middle East conflict prompted the hikes. As many leveraged loans price off Euribor, higher rates may lift borrowing costs and discourage high leverage.
2. Valuation disconnect: As AI models become increasingly capable, doubts about the defensibility of certain business models may grow further. This development in turn could widen the gap between price expectations of buyers and sellers.  

What this means for Q4 2026: The third quarter confirmed that DACH private equity is stabilising. Deal count held close to Q2 levels, exits rebounded sharply. For Q4 we expect a moderate increase in deal activity, supported by a healthy sponsor pipeline, a recovery in fundraising, and growing pressure on sponsors to deploy dry powder and return distributions to LPs. The main headwinds are the two ECB rate hikes to 2.50%, which raise leveraged financing costs, and a widening valuation gap in AI-exposed business models.

For sellers, the practical implication is to prepare assets early and price them realistically against current financing conditions. For buyers, selective opportunities should emerge where valuation expectations begin to converge. Q4 will show whether capital is deployed before year-end or carried into 2027.

Sources: Reuters; Mergermarket (as of September 29th, 2026); Gain “The State of Private Equity Fundraising Report”, Carlsquare Research

2. Sector in the Spotlight: Software Insights from Carlsquare

We sat down with Carlsquare Partner Eric Erbeck on the state of DACH Software M&A in Q3 2026.

How did DACH software M&A evolve in 2026, and what factors do you expect to shape market activity going forward?

In 2026, DACH software M&A was shaped above all by price discipline and the gap between what buyers were willing to pay and what sellers expected. Many sellers had anchored their expectations to 2021 valuations and needed time to adjust. Where that gap closed, deals generally went ahead. Where it did not, owners tended to wait.

Financing conditions also played a major role. How much leverage lenders were willing to provide for recurring-revenue software businesses, and the cost of that debt, directly shaped how much buyers could pay. Carve-outs and corporate portfolio reviews remained an important source of deals. Large corporates reviewing non-core software assets remain a meaningful source of supply.

Strategic buyers and financial sponsors showed different levels of appetite over the year. Their relative appetite shifts with the cost of capital and with currency movements, so it makes sense to track the two groups separately.

Founder succession is steadily adding to the deal pipeline. A significant number of owner-managed DACH software businesses are approaching a transition point, which typically feeds the deal pipeline over a multi-year horizon.

Going forward, three factors are likely to shape market activity. The first is the cost of financing. The second is how pending regulation is resolved, and third, whether AI-native assets start to trade at a distinct premium or discount to traditional SaaS.

Which Software sub-sectors and business models currently attract the most investor appetite, and which KPIs are driving valuations?

There are three sub-sectors that typically draw sustained interest:

1. Vertical SaaS with embedded workflow, payments, or compliance functions, because switching costs are high and pricing power tends to be stronger.
2. Infrastructure and security software where the buyer is technical and the product is hard to replace.
3. Mission-critical back-office software for finance, HR, and procurement, particularly where it is sold on multi-year contracts.

There are multiple KPIs that most consistently drive valuation:

KPI	Why investors care
Net revenue retention	Shows expansion within the existing base
Gross margin, including hosting and support costs	Shows whether scale improves economics
Rule of 40 or a similar growth-plus-margin measure	Balances growth against profitability
Logo and revenue churn, by cohort	Reveals product stickiness beyond headline retention
CAC payback	Shows the efficiency of go-to-market spend
Share of ARR that is contracted and multi-year	Drives revenue visibility and debt capacity
Pricing model (seat, usage, or outcome)	Determines how exposed revenue is to AI-driven compression

Investors increasingly want these KPIs defined consistently and reconciled to audited figures. Inconsistent definitions are one of the quickest ways to lose credibility in diligence.

AI claims have become a standard feature in teasers and CIMs. How do you distinguish AI genuinely creating value from a story dressed up for a good exit?

Most AI claims can be tested with a few direct questions that make sure the story holds up. For example:

Is AI in the core workflow or on the periphery? A feature that customers use daily and would miss is if gone is very different from a chatbot that is added to the homepage.

Can the company show a measurable outcome? Examples include time saved, error rates reduced, or revenue uplift attributable to AI, ideally tied to a control group or a before-and-after comparison. Does AI create proprietary advantage? Proprietary data, workflow lock-in, or distribution advantages matter more than access to a third-party model that competitors can also use.

What are the unit economics of AI? Ask inference cost per customer, how that cost impacts gross margin, and whether the pricing actually captures the value AI creates. Also, does the pricing model capture AI value? If AI reduces the number of seats a customer needs, a seat-based model erodes. Usage- or outcome-based pricing that tracks the value delivered is a stronger signal.

Could a foundation-model provider or incumbent replicate the feature in six months? If so, the defensibility case needs to rest on something else.

A useful rule for teasers and CIMs: if an AI claim cannot be supported in a customer reference call, it should not appear as a value driver in the valuation case.

Regulation is starting to bite: the EU AI Act, data residency rules, sector-specific compliance. How does that change the way software deals get done?

Regulation is no longer a legal footnote in software deals. It now runs as a diligence workstream of its own. It changes how software deals get done. A couple examples:

The EU AI Act means buyers need an inventory of AI systems, their risk classification, and the compliance roadmap. Obligations phase in over time, so the timeline matters for the deal and for the post-close plan.

Data residency and transfer rules raise a separate set of questions. Where customer data is hosted, which sub-processors have access, and whether transfers outside the EU are covered by adequate safeguards. These issues can affect integration plans and hosting costs.

Financial services, health, and public sector customers impose contractual and certification requirements that can restrict who can own or operate the business. So, sector-specific compliance can limit who is able to buy the business

Deal structuring is changing as well. Buyers increasingly ask for representations and warranties that target specific compliance risks, and where a gap is already known, they often back these with a dedicated indemnity or an escrow. The purchase price is also more often adjusted to reflect what it will cost to fix those gaps.

For sellers, the practical lesson is to complete a compliance gap assessment before going to market. Gaps that the seller has already identified and addressed are far easier to manage than gaps a buyer uncovers during exclusivity, when leverage has shifted.

What would you tell a software owner today: launch a process or wait a year? And what should they do now to be ready either way?

Our default answer is that the decision should follow readiness and market conditions, not the calendar. But it makes sense to launch now if growth and retention are stable or improving and the plan for the next twelve months is credible. It also makes sense if the business has a clear reason to want a partner, such as capital for scale, a need for a succession solution, or simply the end of the private equity investment cycle. A launch is also well timed when real growth from AI products is about to come through and the organisational change needed to move the company into the AI era is already well advanced. Finally, financing for comparable assets should be available at a level that supports the seller’s valuation expectations.

There are good reasons to wait if a single year of weaker numbers would materially change the equity story or there are gaps in compliance. Also, if the AI product would hand buyers bargaining chips during negotiations, or if the market is clearly pricing comparable assets below the level the owner is willing to accept.

Some preparation pays off either way. The company should build a KPI pack that uses consistent definitions, is reconciled to the audited accounts, and goes back at least three years. It should also run a vendor due diligence across the core workstreams, including at least an AI assessment and a financial due diligence with a robust data cube. And it should document its AI roadmap with hard evidence rather than relying on claims alone.

A well-prepared business keeps the option to launch quickly. Preparation is not a commitment to sell. In the end, it is what makes the decision a real choice.

Carlsquare View: Price discipline and a flight to quality mean mission-critical DACH software assets will stay contested, while businesses with easily replicated features face discounts or stalled processes. For owners, readiness is the real lever: a reconciled KPI pack, vendor due diligence and an evidenced AI roadmap keep the option to launch quickly, before compliance or product gaps become bargaining chips. For buyers, discipline still pays: the assets worth stretching for are the ones where retention, contracted ARR and proven AI in the core workflow all line up.

Our two most recent Carlsquare Software deals:

Carlsquare advised Maguar Capital on the acquisition financing of ConSense.
Carlsquare advised the management and shareholders of DataConsult on the sale to Elvaston.

3. Financing Market Update from Carlsquare Debt Advisory Team

In this quarter’s newsletter, our Debt Advisory team looks back on a busy summer: we advised curea and Mérieux Equity Partners on a construction facility to finance curea’s new headquarters, and Maguar Capital on the acquisition financing for ConSense.

The European loan markets had a generally subdued third quarter, with M&A-driven issuances being the bright spot. Rising interest rates made borrowing more expensive, and lending activity fell noticeably compared with 2025. European leveraged loan issuance fell 14.0% year-on-year to EUR 25.4bn in Q3 2026. YTD direct lending volumes also declined by ca. 16.5% below 2025. Far fewer companies refinanced their existing debt, while acquisition financing held up well and made up more than half of all new loans. With the ECB raising rates again in September, markets expect further tightening in the coming quarters.

In this edition, we also take a closer look at Asset-Based Lending (ABL) – a way to turn receivables, inventory and other balance-sheet assets into a flexible source of liquidity. An interesting instrument to fund even beyond conventional cash flow lending.

4. Carlsquare PE Conversations: Arno Poschik, Founding Partner at Maguar Capital

Since starting in 2019, Maguar Capital has built a portfolio of 12 PortCos, and in our Partner Interview, Founding Partner Arno Poschik explains what sets those businesses apart and how he decides which software companies are worth backing.

Key Takeaways

• Regulation as a moat: regulatory burdens on customers drive growth at Maguar’s latest investments, Schlafender Hase and ConSense.
• Retention as the ultimate test: “We are not just underwriting recurring revenue. We are underwriting recurring customer value.”  
• AI as an accelerator: fundamentals drive most of the value; AI multiplies them and is already saving 15–30% of engineering time.
• Uncertainty repriced, not software: AI, scarce quality and financing widen the gap between strong and weak assets.
• An outlook: in 2026, buyers asked how defensible a business model is; in 2027, they will ask what companies do with that position, making continuous innovation the differentiator.

Recent Carlsquare Private Equity Deals

For any questions feel free to reach out to our authors Armin Sieber, Head of Financial Sponsor Coverage or Eric Erbeck, Partner at Carlsquare.