Middle Market Private Equity Index – H1 2025

Middle Market Private Equity Activity Remains Bifurcated

Capstone Partners’ bi-annual Middle Market Private Equity Index Report examines private equity dealmaking in the middle market. Leveraging market research and Capstone’s proprietary data, we seek to provide sponsors and portfolio companies greater transparency into U.S. middle market private equity activity including fund formations, dry powder, loan issuance, platform and add-on acquisitions, transaction valuations, hold time, portfolio exits, and return distributions.

The report features Capstone’s Middle Market Private Equity Index, which aggregates proprietary middle market private equity data on a quarterly basis and indexes the values to 100 with a base quarter of Q1 2006. Through this methodology, Capstone is able to provide sponsors and portfolio businesses with a unique perspective on the general health of Private Equity market activity. The Private Equity Index value reached 154.1 in Q2 2025, dropping a mere 2.4 points year-over-year (YOY). Quarter-over-quarter (QoQ), the Private Equity Index value registered a steeper decline of 35.7 points. This moderation largely stemmed from softening fundraising and exit volumes. There has been a significant bifurcation in the market, with capital deployment substantially outpacing capital intake.

Middle Market Private Equity Acquisitions Surge, Exits and Fundraising Dampen

Private equity groups’ prioritization of capital deployment was undoubtedly reflected in middle market merger and acquisition (M&A) activity through the first half (H1) of 2025, with total completed sponsor acquisitions increasing 9.6% YOY. On a YOY basis, middle market private equity dealmaking in H1 2025 outperformed total M&A (+2.6%) and strategic buyer activity (-2.4%), demonstrating sponsors’ prevalence. Financial buyers continued to focus on add-on engagements to scale portfolio companies via the buy-and-build strategy—a tactic that has seen heightened utilization since 2020. However, platform deals rose meaningfully in H1 2025. Robust dry powder levels and moderating debt costs enabled private equity firms to pursue scalable platform opportunities, which will likely amplify add-on pursuits in the second half of the year.

Private equity exit activity has fallen each year since 2021 and continued its decline in H1 2025. High-quality portfolio companies remained the core component of sponsor exits through H1 2025. While best-in-class portfolio exits enabled sponsors to maintain internal rate of return (IRR) levels, this selectivity may hinder return distributions and limited partner (LP) relationships in the long term. The stark drop off in middle market continuation fund formation is also expected increase LP pressure for exits and returns. However, pent-up exit demand is not anticipated to unleash until 2026 as consistent policy changes under the Trump administration will likely continue to cloud market visibility through year-end 2025.

Middle market private equity fundraising continued to cool in H1 2025. Sponsors’ ability to elicit LP engagement and secure capital was primarily hampered by muted exit activity. While general partner (GP)-led secondary funds buoyed capital raising in 2024, this continuation approach decelerated in H1 2025 as extended holding periods exhausted many fund investors. Buyout fundraising declined in H1 2025, although continued to comprise the majority of total private equity capital raised. Meanwhile, capital raising for growth-oriented funds remained consistent YOY as many sponsors pursued smaller investments amid the challenging environment. Private equity capital raises will likely remain slow until exit visibility improves and the market gains clarity, or accepts uncertainty, on key headwinds such as tariffs.

M&A Activity by Sector

The report provides an in-depth analysis on M&A valuations and volume by sector within 10 of Capstone’s primary coverage industries, identifying emerging hot spots for private equity buy-side activity through H1 2025.

• Aerospace, Defense, Government & Security
• Agriculture
• Building Products & Construction Services
• Business Services
• Consumer
• FinTech & Services
• Healthcare
• Industrials
• Technology, Media & Telecom
• Transportation, Logistics & Supply Chain

Middle Market Private Equity Index – Report Download

Complete the form below to request the full publication.

Connect with Capstone’s Sponsor Coverage Team

Capstone Partners’ Sponsor Coverage Team maintains relationships with private equity firms that are targeting middle market businesses and/or have middle market holdings. If you are a private equity investor or sponsor-backed portfolio company, we invite you to contact us today to learn more about how our Sponsor Coverage Team will partner with you to develop a plan that can be applied to your acquisition strategy, debt capital needs, and performance improvement initiatives.