By Lina Irawan 
The scale of this "undeath" within private equity portfolios is startling. Recent data from PitchBook reveals that among the 13,509 companies currently backed by U.S. private equity firms, a staggering 33.8% have been held for five years or more. This means that over 4,500 PE-backed companies are currently languishing in some form of zombie stage. The financial implications are equally immense: PitchBook estimates that approximately $860 billion in zombified net asset value is locked up in U.S. private equity funds that are more than seven years old. This substantial capital, originally intended for active growth and timely returns, is now trapped in underperforming assets, creating a bottleneck for new investments and capital distributions.
The definition of a "zombie company" in this context is nuanced but clear, as articulated by Kyle Walters, a private equity analyst at PitchBook. While the term evokes images of decay, these are not necessarily companies on the brink of immediate collapse. Rather, they are portfolio companies that have significantly overstayed their welcome within a fund’s typical investment horizon, generally 3-7 years. Walters explains, "You have a large number of companies that theoretically should’ve been exited by now. Capital should have been returned to investors, but instead you have more companies in that seven to ten year-age bucket than we’re traditionally used to, with seemingly no way of realizing a successful exit. And so, we’re stuck with these zombies."
These zombie companies come in various "strains." By age, a company held for five years is already considered "feverish," showing signs of prolonged stagnation. By ten years, it’s a "full-fledged hungry zombie," consuming resources without delivering commensurate returns. Beyond age, there are "distressed zombies" that are actively struggling and burning cash, and then there are those that are merely "surviving"—treading water, perhaps breaking even, but lacking the growth trajectory or strategic appeal necessary for a lucrative exit. They are not dead, but neither are they truly alive in the dynamic sense that private equity demands.
The genesis of this zombie apocalypse can be traced directly back to the ZIRP (Zero-Interest-Rate Policy) era, a period characterized by historically low interest rates following the 2008 financial crisis and further intensified during the COVID-19 pandemic. This environment made debt incredibly cheap and capital readily available, leading to what many now retrospectively describe as "exuberant trouble" in the private markets. For private equity, cheap debt became the primary fuel for an unprecedented buyout boom. Firms could leverage companies heavily, acquire them at high valuations, and rely on financial engineering—primarily debt-driven returns—rather than deep operational improvements, to generate profits. The assumption was that interest rates would remain low, allowing for easy refinancing or a favorable market for exits.
This reliance on cheap leverage meant that valuation multiples soared, reaching their peak in 2020 and 2021. Companies were being bought at multiples of 10x, 12x, or even higher, based on projections that often hinged on continued market buoyancy and readily available credit. The competitive landscape for deals also intensified, with an abundance of dry powder driving up prices and sometimes leading to less stringent due diligence processes. Limited partners, eager for returns in a low-yield environment, continued to pour money into private equity funds, further encouraging GPs to deploy capital rapidly, even if it meant paying a premium.
The party, however, came to an abrupt halt post-COVID in 2022 and 2023, as central banks globally, led by the Federal Reserve, embarked on an aggressive campaign of interest rate hikes to combat surging inflation. "When you get rates going to their highest in 40 years, you’re no longer able to rely on that financial engineering," Walters explains. The cost of debt service for highly leveraged companies skyrocketed, eating into cash flows and profitability. Refinancing became prohibitively expensive, and the prospect of an IPO or a strategic sale at previous peak valuations evaporated.
Suddenly, the calculus changed dramatically. Private equity firms found themselves in a precarious position: not only had they acquired these companies at the market peak of 2020-2021, when valuations were highest and capital costs were minimal, but they now faced the daunting task of creating operational improvements in an economic environment where it was "hardest to do so." Inflationary pressures, supply chain disruptions, labor shortages, and softening consumer demand all conspired to make organic growth and margin expansion incredibly challenging. "Pair that with companies that were bought at 12x, and are maybe worth 10x, and you’ve dug yourself a bit of a hole, and there’s no real way to get out," Walters laments.
The impact of this zombie problem extends beyond individual companies and funds. It’s hindering growth across the entire private equity industry. Fund managers find it "pretty tough to raise a new fund when your current portfolio looks like The Walking Dead," as the article humorously puts it. Delayed exits mean that capital is not being returned to LPs, which in turn reduces their ability to re-invest in new funds from the same GPs or others. This creates a "denominator effect," where LPs’ private market allocations become overweighted relative to their overall portfolio due to public market declines, further constraining new commitments.
Despite the widespread nature of the issue, Walters believes we haven’t yet reached a point of systemic failure. However, he cautions that such a crisis could emerge if "multiple layers" of risk converge. "Once you have this existing layer of zombies, on top of that, you need to have some other factor of risk," he notes. Potential triggers for a structural crisis could include a deeper, prolonged economic recession, a significant credit crunch that chokes off even more financing options, increased LP redemption pressure forcing fire sales, or intensified regulatory scrutiny. These larger triggers would "really see action forced with the private markets," which historically have had the "advantage of timing" due to the illiquid nature of their assets, allowing them to "kick the can down the road" more effectively than public markets.
The question then arises: what is the natural endpoint of any zombie crisis, financial or otherwise? Pondering this, the author consulted Gemini, an AI, which offered a rather morbid, biological perspective: "The natural endpoint of a zombie crisis is total biological collapse. Without a living host metabolism to repair tissue, maintain cellular function, or evade environmental elements, the infected population inevitably succumbs to complete physical decomposition, weather mummification, or consumption by scavengers within weeks or months. Most users on Reddit agree that biological decay acts as the ultimate limiting factor for any reanimated or infected horde."
While the AI’s grim forecast pertains to literal zombies, it offers a stark metaphor for the fate of financially undead companies. Walters, however, takes a somewhat more optimistic view, suggesting that the natural cycle of markets will eventually lead to long-awaited exits, albeit not necessarily the home runs GPs initially envisioned. "Private equity is very good at timing the market," he argues. "It’s going to take time, but I think you’ll see what we see in life generally: The strong come in and take advantage of the weak. Some of these platform companies will come in, and say: ‘hey, we know this is a zombie company, but it’d be a great addition to our platform.’ And the zombie achieves the final exit, even if it took longer than originally thought." This scenario involves strategic buyers or other PE firms with dry powder acquiring these assets at discounted prices, integrating them into larger platforms for synergy or operational turnaround, effectively salvaging some value.
The author, however, leaned towards a more fatalistic interpretation, aligning with the biological decay analogy: that many of these zombie companies will simply "die, go bankrupt, wind down." This would result in significant capital losses for LPs and write-offs for GPs. Ultimately, Walters believes the outcome will be a combination of both interpretations. "These companies can’t sit in the portfolio forever," he concludes. "They have to decay in one way or another. There is always an outcome—one is better than the other—but it’s inevitable." The private equity industry faces a reckoning with its walking dead, and while the exact path to their final resting place remains uncertain, the necessity of an outcome is not. GPs must now navigate this treacherous landscape, making difficult choices to either resuscitate, sell at a loss, or allow these zombies to finally decompose, thereby clearing the way for future growth.
MARKET ACTIVITY SNAPSHOT
VENTURE CAPITAL
- Quintessent, a Santa Barbara, Calif.-based developer of optical interconnect products vital for AI data centers, successfully raised $40 million in a Series A funding round. The investment was spearheaded by Cycle Capital, with participation from other undisclosed investors.
- Airbound, a drone delivery company based in Bengaluru, India, secured $37 million in Series A funding. Greenoaks led this significant round, joined by prominent names such as DoorDash, Lightspeed, Lachy Groom, and Humba Ventures.
- Hivemind Digital Group, a New York City-based investment firm specializing in digital assets and blockchain technology, announced it had raised $17 million in funding. M&G Investments anchored the round, with additional contributions from CPIC Investment Management, ZA Bank, and others.
- Kazimi, a Berlin, Germany-based cybersecurity company focused on mobile applications, raised $2.6 million in pre-seed funding. The round was led by Market One, with participation from IBB Ventures and several angel investors.
- Itoflow, a London, U.K.-based AI-powered portfolio-management platform designed for investment teams, completed a $2.5 million pre-seed funding round. Balderton Capital led the investment, which also saw involvement from angel investors.
PRIVATE EQUITY
- ATIS, a portfolio company of Thompson Street Capital Partners, finalized the acquisition of AuditMate, a San Francisco-based software company specializing in elevator asset management. Financial terms of the transaction were not disclosed.
- Rotunda Capital Partners acquired Revv, a New York City-based software company providing ADAS (Advanced Driver-Assistance Systems) repair-workflow solutions. Rotunda Capital Partners plans to merge Revv with its existing portfolio company, AirPro Diagnostics. Financial terms were not revealed.
EXITS
- Linden Capital Partners completed the acquisition of ArtesRx, a Chicago, Ill.-based specialty pharmacy platform, from Flexpoint Ford. The financial details of this exit were not made public.
OTHERS
- Descartes acquired Tai, a Huntington Beach, Calif.-based transportation-management software provider catering to freight brokers, for approximately $100 million.
