Dealmaking Activity Overview

The US private equity (PE) middle-market has experienced a noticeable decline in activity since its peak in 2021, a trend largely attributable to a tightening macroeconomic environment. After a record-breaking year in 2021, where deal value soared to an unprecedented $518 billion and deal count exceeded 4,000 transactions, the market began to cool. This deceleration reflects a combination of factors, including rising interest rates, heightened inflationary pressures, and a general slowdown in economic growth following the sharp post-pandemic rebound.

As borrowing costs increased, deal financing became more expensive, directly impacting leveraged buyouts and reducing the appetite for aggressive expansion among PE firms. In parallel, valuation expectations between buyers and sellers have widened, leading to prolonged deal timelines and, in some cases, stalled negotiations. Regulatory scrutiny has also intensified, particularly for larger deals, adding another layer of complexity to the deal-making process.

The data illustrates this well: from the 2021 highs, deal value contracted to $379 billion in 2022 and further dipped to $320 billion in 2023, before showing a modest recovery to $359 billion in 2024. Deal counts followed a similar trend, declining from peak levels but maintaining relative resilience, which suggests ongoing—albeit more cautious—market activity.

Looking ahead, while challenges persist, there are signals that the market may be stabilizing. Dry powder levels remain elevated, and PE firms continue to seek opportunities in resilient sectors such as healthcare, technology, and business services. Should macroeconomic conditions improve, particularly with potential easing of interest rates and inflation moderation, we may see a gradual revival in middle-market deal flow.

Overall, while the exuberance of the 2021 cycle may not return in the near term, the fundamentals of the middle-market PE segment remain intact, offering room for cautious optimism among market participants.

The Long-Term Trend in US PE Middle-Market Activity

To better understand the underlying trajectory of US PE middle-market deal activity, we applied the Hodrick-Prescott (HP) filter to the quarterly deal value data. This approach enables us to decompose the time series into its cyclical (short-term fluctuations) and trend (long-term trajectory) components, helping to distinguish between structural changes and temporary market noise.

The HP filter minimizes the sum of the squared deviations of the actual series from its trend component, penalizing rapid changes in the growth rate of the trend itself.

For quarterly data, a smoothing parameter λ = 1600 is conventionally used, striking a balance between capturing meaningful trends while filtering out cyclical volatility. This methodology is widely adopted in macroeconomic research to reveal persistent movements in economic time series.

The chart above illustrates this analysis:

• The orange line represents actual US PE middle-market deal value, which shows significant short-term volatility, particularly during the 2020 pandemic shock and the extraordinary rebound in 2021.

• The dashed blue line is the HP-filtered long-term trend. This trend line smooths the data to reveal a more stable growth path, unaffected by temporary disruptions.

Key Insights:

• From 2007 through 2015, the long-term trend was steadily rising, reflecting gradual recovery and increasing middle-market deal flow following the Global Financial Crisis.

• Post-2015, the trend accelerated, aligning with favorable market conditions such as low interest rates, abundant dry powder, and strong corporate earnings growth.

• Despite the dramatic spike in 2021, driven by post-pandemic recovery and pent-up demand, the underlying trend remained more tempered, underscoring the fact that 2021 was an outlier rather than a structural shift.

• Notably, even with the macroeconomic tightening and deal volume declines post-2022, the trend line has stabilized rather than sharply declining, suggesting resilience in the middle market's foundational strength.

By focusing on the trend component, stakeholders can better assess the sustainability of market movements, avoiding overreactions to short-term volatility. This is particularly valuable in periods of macroeconomic uncertainty, where distinguishing between cyclical downturns and long-term structural shifts is critical for strategic planning.

Detrended (Cycles) component

The de-trended analysis of US PE middle-market deal activity reveals a clear narrative of cyclical fluctuations around the long-term trend. During the 2007–2009 period, the market experienced substantial negative deviations as the Global Financial Crisis severely suppressed deal flow, pushing activity well below its underlying trajectory. This was followed by a period of moderate recovery from 2010 to 2015, where cyclical movements oscillated around the trend line, indicating a cautious return to normalcy without significant excesses or deficits.

Between 2016 and 2019, cyclical activity remained modestly positive, reflecting a generally favorable environment for deal-making, supported by low interest rates and robust economic fundamentals. However, the onset of the pandemic in 2020 disrupted this stability dramatically. The cyclical component plunged to its most negative point in the observed period, capturing the sharp contraction in activity as uncertainty and operational disruptions gripped the market.

What followed in 2021 was an extraordinary rebound. Pent-up demand, abundant capital, and a backlog of delayed transactions drove cyclical activity to peak levels well above the trend, highlighting the intensity of the post-pandemic surge. Yet, this momentum proved unsustainable. From 2022 onwards, the cycle shifted back into negative territory amid rising interest rates, inflationary pressures, and growing macroeconomic uncertainty. Encouragingly, the data through 2024 suggests a degree of stabilization, with the cycle beginning to flatten, hinting at the potential normalization of market conditions.

The central role of Middle-market in nationwide Private Equity

The US middle-market continues to represent a critical engine of overall private equity activity, consistently accounting for a substantial share of both total deal count and aggregate deal value. Over the past decade and a half, the middle market has demonstrated remarkable resilience, maintaining a relatively stable share of total US PE deals despite fluctuations in broader market conditions. This sustained prominence underscores the enduring appeal of the segment to investors seeking diversification, lower entry multiples, and operational value-creation opportunities.

Notably, the middle market’s share of deal count has remained robust, often exceeding 60%, even during periods of heightened macroeconomic stress. This reflects the agility and breadth of opportunities within the middle market, where deal flow tends to be less concentrated and less dependent on megadeals. Meanwhile, the share of deal value has experienced somewhat greater variability, indicating the influence of large-cap transactions and cyclical shifts in valuations. Periods of increased megadeal activity, particularly in boom years, have temporarily diluted the middle market’s proportion of total deal value.

However, recent trends suggest a potential rebalancing, as tighter financing conditions and more selective underwriting favor middle-market transactions over larger, more leveraged deals. As investors recalibrate their strategies, the middle market remains well-positioned to capture sustained attention within the private equity ecosystem.

US PE-Middle Market deal activity by sector

The sectoral composition of US PE middle-market deal activity has remained relatively stable over the past two decades, yet notable trends have emerged that reflect broader economic shifts and investor preferences. Business-to-Business (B2B) transactions have consistently dominated the middle-market landscape, accounting for a substantial portion of deal count throughout the period. This persistent dominance underscores the attractiveness of B2B companies, which often benefit from recurring revenue models, scalable operations, and lower consumer demand volatility compared to their B2C counterparts.

The Business-to-Consumer (B2C) segment, while secondary to B2B, continues to hold a meaningful share of deal flow. Consumer-facing businesses attract investor interest for their growth potential, especially during periods of strong consumer confidence and spending. However, the cyclical nature of consumer demand is evident in the relative fluctuations of this sector’s share over time.

Notably, the importance of sectors such as healthcare and IT has grown steadily, reflecting secular tailwinds including aging demographics, digital transformation, and the increasing role of technology across industries. Healthcare, in particular, has become a resilient pillar within the middle market, offering defensive characteristics and stable cash flows. Similarly, IT investments have remained robust, as businesses accelerate technology adoption to drive efficiency and innovation.

Energy and materials, traditionally more cyclical sectors, have seen their relative share decline over time, influenced by the energy transition and shifting capital allocations toward more sustainable industries. Meanwhile, financial services maintain a consistent yet moderate presence, supported by ongoing demand for specialty finance and fintech innovations.

Overall, the sectoral breakdown illustrates the diversification and evolving focus of middle-market private equity, balancing defensive sectors with high-growth opportunities while maintaining a broad base of industrial and consumer investments. This diversity is a key strength of the middle market, offering resilience against economic cycles and adaptability to emerging investment themes.

US PE-Middle Market deal activity by backing status

The evolution of deal backing status within the US middle market reveals important dynamics about the sources of capital and target profiles favored by private equity investors. Over time, PE-backed transactions have consistently represented the dominant share of deal value, highlighting the active role of secondary buyouts in sustaining deal flow. The prevalence of these transactions reflects the maturity of the private equity ecosystem, where ownership transitions between sponsors have become a well-established exit route, providing liquidity while keeping assets within the PE universe.

In contrast, the share of deals involving publicly held companies has generally trended downward from the elevated levels observed in the late 2000s. This decline likely mirrors a broader reduction in public-to-private transactions as valuation gaps and financing complexities increased, especially during periods of market volatility. Nonetheless, public take-privates remain a relevant, albeit smaller, component of middle-market activity.

Non-backed companies—those without prior institutional ownership—continue to represent a substantial portion of deal value, underscoring the middle market's role as a fertile hunting ground for first-time buyout opportunities. These deals often appeal to investors seeking operational improvements and value creation through active ownership.

Interestingly, VC-backed exits maintain a modest but consistent presence, reflecting the natural progression of venture-backed businesses maturing into private equity targets. Meanwhile, the “Other” category, which includes family offices, corporate carve-outs, and alternative structures, has held relatively steady, pointing to the diversity of deal sourcing channels beyond traditional PE pathways.

Overall, the data illustrates a well-balanced ecosystem in which PE sponsors dominate but non-backed and alternative ownership sources continue to provide meaningful deal flow, ensuring a dynamic and varied middle-market transaction landscape.

US PE Middle-market carveout/divestiture activity

Carveout and divestiture activity in the US PE middle market has exhibited a notable upward trajectory over the past decade, reflecting both the strategic imperatives of corporate sellers and the growing appetite among private equity buyers for complex transactions. Since the post-financial crisis trough in 2009, when capital invested in carveouts fell to just $11 billion, the market has steadily expanded, culminating in a record high of $47 billion in 2024. This growth underscores the increasing willingness of corporates to shed non-core assets, particularly in a market environment that rewards balance sheet optimization and portfolio rationalization.

The deal count trend complements this narrative, showing a gradual and consistent rise, with over 300 transactions completed in the most recent year. This sustained level of activity suggests that carveouts have become an embedded feature of the middle-market deal landscape, valued for their potential to unlock hidden value through operational improvements and dedicated ownership.

Private equity firms have sharpened their focus on these opportunities, recognizing that corporate divestitures often come with established operations, revenue streams, and pathways to value creation through strategic repositioning. Amid shifting macroeconomic conditions and increasing shareholder pressure on corporates to streamline, carveouts are poised to remain a key driver of middle-market deal flow, offering compelling prospects for value generation in the years ahead.

US PE Middle-Market Valuations

Valuation dynamics in the North American and European middle-market private equity space have experienced significant shifts over the past decade, as reflected in the evolution of median EV/EBITDA multiples. Following a period of relative stability, multiples began to climb in the late 2010s, peaking sharply at 14.4x EBITDA in 2021. This expansion in valuation multiples was driven by a confluence of factors: unprecedented liquidity conditions, historically low interest rates, and fierce competition for quality assets as investors sought yield in an environment of ample capital availability.

The 2021 peak notably coincided with a rebound in deal activity post-pandemic, where pent-up demand and abundant dry powder fueled a surge in transaction volumes and pricing. However, this elevated environment proved unsustainable. As inflationary pressures mounted and central banks began to tighten monetary policy, valuation multiples began to normalize. By 2023, median multiples had compressed to 11.6x, reflecting a recalibration of pricing expectations amid rising financing costs and heightened macroeconomic uncertainty.

Interestingly, despite the market headwinds, multiples have remained resilient relative to historical norms. In 2024, the median multiple recovered modestly to 13.0x, suggesting sustained investor confidence in middle-market opportunities. This reflects the continued appeal of high-quality assets with defensive characteristics and earnings visibility, even in a more disciplined valuation environment.

Overall, while multiples have retreated from their 2021 highs, the middle market remains a relatively robust segment, with valuations supported by strong underlying fundamentals, operational value-creation potential, and selective buyer demand in an evolving macro landscape.

The evolution of EV/Revenue multiples in the North American and European middle-market buyout space largely mirrors broader valuation trends, albeit with sharper swings that highlight investor sentiment towards top-line growth potential. Over the past decade, median multiples have demonstrated a steady upward trend, peaking at 3.0x revenue in 2021, a level well above historical averages. This expansion was fueled by abundant liquidity, aggressive competition for high-growth assets, and a pronounced appetite for businesses with strong revenue trajectories, especially those in technology, healthcare, and digitally enabled sectors.

The sharp escalation in multiples leading up to 2021 reflected the market’s willingness to pay premium valuations for future growth, particularly in a low-interest-rate environment where earnings visibility was highly prized. However, as macroeconomic conditions tightened and interest rates rose, valuation discipline returned. By 2023, median multiples had compressed to 2.2x, as buyers became more cautious in pricing growth amid concerns over cost inflation, slower expansion rates, and overall market uncertainty.

Despite this correction, the resilience of multiples in 2024 suggests a degree of stabilization, with valuations holding at 2.2x, in line with pre-pandemic levels. This reflects a recalibrated, yet still constructive, environment where investors continue to value top-line growth but with greater emphasis on profitability and cash flow generation.

Ultimately, while the days of peak expansionary multiples may have passed, the middle market continues to offer attractive opportunities for investors focused on sustainable growth, disciplined underwriting, and operational value creation in a more normalized valuation climate.

Liquidity in US PE Middle-market

Liquidity in the US private equity middle market has remained robust and remarkably stable in recent years, underscoring the segment's enduring appeal to investors. Following the sharp contraction of the post-global financial crisis period, the market staged a steady recovery, culminating in an extraordinary high in 2011 when middle-market buyout capital represented an exceptional 96.8% of all US PE capital raised. This peak was largely driven by subdued fundraising in the large-cap segment and a concentrated focus on middle-market opportunities, as investors sought to deploy capital into resilient, scalable businesses amid an uncertain macroeconomic backdrop.

Since 2018, the market has entered a phase of consistent equilibrium. The middle-market share of overall PE capital raised has averaged 51%, with fluctuations confined within a narrow range — never exceeding this benchmark by more than 2.07%, nor dipping more than 3.3% below it. This remarkable steadiness highlights a healthy and balanced fundraising environment, suggesting that middle-market strategies have become an integral part of the private equity allocation framework for institutional investors.

Even as aggregate fundraising volumes have ebbed and flowed, the middle-market’s proportional share has held firm. This stability reflects both the structural advantages of the segment — including diversification, lower entry valuations, and operational upside — and investor recognition of the middle market’s role as a reliable engine for risk-adjusted returns. Going forward, the persistence of this equilibrium points to sustained confidence in the segment, even as broader private equity markets navigate a more challenging capital-raising climate.

Exit Activity

Exit activity in the US PE middle market has displayed resilience despite recent macroeconomic headwinds, though with clear shifts in both composition and sectoral dynamics. Historically, sponsor-to-sponsor buyouts have consistently dominated exit routes, and this remained the case in 2024, with buyouts accounting for $64.5 billion of exit value. Secondary buyouts continue to serve as a reliable liquidity path, reflecting the depth and maturity of the PE ecosystem.

Trade sales (acquisitions) also held firm, contributing $50.9 billion in 2024, underscoring sustained strategic interest in middle-market assets, especially among corporates seeking growth through targeted acquisitions. In contrast, public listings have largely faded from the exit landscape, with IPO markets effectively closed to middle-market issuers in the past two years, reflected in a minimal $0.8 billion in 2024. This sharp decline highlights the challenging public market conditions and the current reliance on private channels for liquidity.

From a sector perspective, exit activity continues to mirror investment trends, with B2B and B2C sectors maintaining leading shares of total exit value. Notably, healthcare and IT exits have grown in prominence, reflecting their resilience and attractiveness to both financial and strategic buyers. Energy and materials, while cyclical, remain smaller components of the exit mix, consistent with their evolving role in middle-market portfolios.

Overall, while the routes to liquidity have narrowed, the middle-market continues to offer viable exit pathways, with robust buyout and acquisition activity compensating for subdued public market alternatives.

US PE-Middle Market Sensitivity to Interest rates

The US PE middle market remains inherently sensitive to interest rate movements, as higher borrowing costs directly impact deal financing structures, valuation multiples, and overall transaction volumes. As rates increased, the higher cost of capital exerted downward pressure on valuations, prompting greater discipline in pricing and underwriting. Elevated rates also led to a moderation in deal flow, as both buyers and sellers adjusted to tighter financing conditions and wider bid-ask spreads. Conversely, periods of accommodative monetary policy have historically supported elevated multiples and buoyant deal activity, underscoring the close interplay between interest rate cycles and middle-market private equity dynamics.

This relationship is further illustrated by the observed negative correlation between US interest rates and middle-market deal value, as depicted in the accompanying analysis. The chart shows a clear downward-sloping trend, indicating that as 10-year US Treasury yields rise, overall PE middle-market deal value tends to decline. Although the relationship is moderate, with an R² of 0.0556, it reinforces the fundamental link between financing conditions and private equity activity. Higher yields increase the cost of leverage, a critical driver of middle-market buyouts, which in turn compresses valuation appetite and slows transaction momentum. Conversely, periods of lower interest rates have historically supported heightened deal activity, as cheaper debt financing amplifies returns and enables buyers to meet seller expectations on price. While other factors such as macroeconomic outlook, sector dynamics, and capital availability also play crucial roles, the data underscores that the middle-market segment remains meaningfully exposed to the interest rate environment. As rates stabilize or potentially decline, this could pave the way for a recovery in deal volume, particularly as pent-up capital seeks deployment in a recalibrated valuation landscape.

US PE-Middle Market Sensitivity to Interest rates by Sector

Breaking down the sensitivity of US PE middle-market deal activity to interest rates by sector reveals important nuances beneath the aggregate trends. 

Notably, B2B transactions exhibit the highest sensitivity, with a steep negative magnitude of -425.8, alongside an R² of 0.167, indicating that rate changes meaningfully influence capital deployment in this segment. Consumer-focused sectors (B2C) and Financial Services follow, also showing pronounced negative sensitivities, reflecting their dependency on financing conditions and broader economic cycles. In contrast, Healthcare and IT display comparatively lower sensitivity, with adjusted R² values of 0.32 and 0.30, respectively, suggesting greater resilience to rate fluctuations. This likely stems from the secular growth drivers and defensive qualities inherent in these sectors, which help sustain deal activity even in tighter monetary environments. Energy and Materials & Resources, while showing lower R² values, still exhibit negative sensitivity, though to a lesser extent, implying that while rates matter, commodity cycles and sector-specific factors play a more dominant role. Overall, this sectoral breakdown reinforces the conclusion that while higher interest rates universally temper middle-market activity, sectors linked to long-term structural themes, such as healthcare innovation and digital transformation, continue to attract investment despite rising borrowing costs, providing a degree of insulation from the broader macro environment.

Conclusion

The US private equity middle market stands at a critical juncture, navigating a complex and challenging macroeconomic landscape that increasingly resembles a stagflationary environment. Elevated inflation, sluggish growth prospects, and persistently high interest rates have combined to create an unforgiving backdrop for dealmaking, placing significant pressure on liquidity and valuation dynamics. While the extraordinary peaks of 2021 are firmly in the rearview mirror, the application of trend analysis reveals that the market’s underlying fundamentals remain resilient. The Hodrick-Prescott filter underscores this structural strength, showing a stabilizing long-term trajectory even amid cyclical downturns.

Liquidity, a foundational pillar for private equity vitality, has so far held steady. Despite global capital constraints, the middle market continues to command consistent fundraising attention, reflecting investors' recognition of its diversification benefits and operational upside potential. This equilibrium, however, is not immune to the shifting tides of monetary policy. The Federal Reserve's higher-for-longer stance, driven by Powell’s imperative to tame inflation, directly raises the cost of capital, dampening leveraged buyouts and widening valuation gaps between buyers and sellers. The middle market's sensitivity to rates is clear, with sectors such as B2B and Consumer facing pronounced headwinds, while healthcare and IT sectors offer relative defensiveness due to their secular growth drivers.

Looking ahead, the path forward hinges largely on macroeconomic recalibration. If stagflation persists, with sticky inflation and anemic growth forcing Powell into a corner, the pressure on middle-market activity will intensify, constraining both deal flow and exit opportunities. Conversely, should monetary conditions ease — either through disinflationary trends or an eventual policy pivot — we can expect a resurgence of activity as dry powder seeks deployment in a recalibrated valuation environment.

Ultimately, the US PE middle market’s inherent diversification, operational value-creation potential, and adaptability across economic cycles position it well to endure this challenging phase. While short-term volatility is likely to remain elevated, the long-term trend suggests cautious optimism. Investors and stakeholders who maintain discipline, focus on sectoral resilience, and prepare for a range of macro outcomes will be best positioned to capitalize when the market transitions from stagnation to renewal.

Sources & References

EQT. (2025). How do Interest Rates Impact Private Markets? https://eqtgroup.com/thinq/wealth/how-do-interest-rates-impact-private-markets 

Federal Reserve Bank of St. Louis. (2025). Economic Data. https://fred.stlouisfed.org/ 

Financial Times. (2024). Higher rates have changed the game for private equity. https://www.ft.com/content/59c74678-4e4e-4bd6-9522-29694e328e21 

KKR. (2024). How Private Equity Can Thrive with Elevated Interest Rates. https://www.kkr.com/insights/private-equity-and-interest-rates 

Pitchbook. (2024). US PE Middle Market Report. https://files.pitchbook.com/website/files/pdf/2024_Annual_US_PE_Middle_Market_Report.pdf 

The Family Office. (2024). Interest rates vs Private Equity. https://tfoco.com/en/insights/articles/interest-rates-impact-private-equity-analysis