Q4 2025 Middle-Market Private Equity Report: A Bifurcated Market

Summary: Middle-market private equity activity in Q4 2025 reflected a bifurcated market, with strong demand and valuations for high-quality assets and increased scrutiny on mid-tier businesses. In this report, KSM’s investment banking team, Charter Capital Partners, highlights key market trends and offers insight into how disciplined underwriting and improving financing conditions are shaping deal activity heading into 2026.

Middle-market private equity activity in 2025 reflected a bifurcated environment. While overall deal value remained strong, driven by an increase in larger transactions and improving financing conditions, activity in the middle market continued to favor high-quality assets. Businesses with scale, margin resilience, recurring revenue, and clear growth visibility achieved strong valuations, while average-quality assets faced increased scrutiny amid disciplined underwriting and elevated equity requirements.

Drawing on market data and sponsor activity, this report highlights key trends shaping the middle-market private equity landscape. Financing markets improved, with tighter spreads and increased lender competition supporting deal activity; however, leverage levels remained measured, and underwriting standards were conservative. Exit activity began to recover but remained concentrated in larger, high-performing assets.

Looking ahead to 2026, dry powder levels remain elevated, and pressure to deploy capital is increasing. Transaction activity is expected to broaden as financing conditions stabilize and valuation gaps continue to narrow.

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