Private equity companies are sitting on roughly $862 billion dollars in cash that they have raised, but not deployed in the markets yet. This is the highest level in "dry powder, the industry name for the cash in flux, since at least 2008. Meanwhile, total spending on mergers and acquisitions has fallen 13 percent from 2015, according to data compiled by Bloomberg.

While total spending on deals is down, the average premium paid for acquisitions this year is about 31 percent, an eight-year high. That could be a warning sign for buyout firms-- they have to find a way to sell assets for more than they paid within a few years to satisfy investors who contributed to their investment pools.

“The supply-demand imbalance is pushing prices up to levels that are difficult to justify,” said Graham Elton, a partner with Bain & Company. “To combat this, the best private equity firms are getting out well ahead of potential processes to increase their deal scrutiny.”