Middle Market Private Equity Index – 2025

Middle Market Private Equity Activity Further Bifurcates

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 202.6 in Q4 2025, dropping a mere 1.5 points year-over-year (YOY). However, the Private Equity Index value rose 23.6 points quarter-over-quarter (QoQ). This QoQ rebound largely stemmed from heightened acquisition volume and merger and acquisition (M&A) spend as the Private Equity market continued to struggle with capital intake, exacerbating the bifurcation witnessed in the first half of the year.

Middle Market Private Equity Acquisitions Continue to Rise, Exits and Fundraising Remain Muted

Sponsors continued to prioritize capital deployment in 2025, with total completed middle market private equity acquisitions increasing 3.8% YOY to 5,371 transactions. On a YOY basis, sponsor dealmaking in 2025 outperformed total M&A (+0.3%) and strategic buyer activity (-2.4%), demonstrating private equity’s growing prevalence in the middle market. As a result, financial buyers captured 44.9% of M&A in 2025, up from 43.4% in 2024. Sponsors continued to focus on add-on engagements (59.8% of total private equity buyouts) to scale portfolio companies via the buy-and-build strategy—a tactic that has seen heightened utilization since 2020. However, platform deals rose 9.1% YOY in 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 2026.

Private equity exit activity continued to decline from 2021’s peak, falling 2.2% YOY in 2025. High quality portfolio companies remained the core component of sponsor exits in 2025, demonstrated by the total exit value ballooning 57.1% YOY to $589.2 billion. While large transactions of scaled portfolio companies buoyed total exit value, the liquidity environment remained fragile for the majority of private equity-backed businesses reaching maturity. Sponsor exit activity showed signs of a recovery in late 2025 as Q4 volume increased 7.3% YOY and value jumped 103.3%. Although exit opportunities were limited for most private equity portfolio companies, the YOY uptick in Q4 exit count bodes well for a broader market opening. Limited partner (LP) demand for distributions is expected to serve as a primary driver for 2026 private equity exit activity, especially in the middle market as continuation fund formation growth slowed.

Middle market private equity fundraising continued to regress in 2025, with total capital raised falling 24.1% YOY and fund count dropping 36.3%. 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 2025 as extended holding periods exhausted many fund investors. Meanwhile, co-investment fundraising value surged 461.1% YOY in 2025 as sponsors looked to gain access to alternative capital sources, mitigate risk, and maintain investment control. Buyout fundraising declined 27.3% YOY to $127.9 billion in 2025, although it continued to comprise the majority (77.1%) of total private equity capital raised. Sponsor capital raises are anticipated to remain slow until LP distributions rebound.

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 in 2025.

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

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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.