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Amid rising volatility, 2025 Middle-Market Private Equity Report reveals persistent concerns about macroeconomic and other headwinds despite expectations for an improving M&A landscape

(CHICAGO) As 2025 opened, hope for a resurgent deal market had US middle-market private equity (PE) investors forecasting a brighter outlook for transactions. Yet while prospects may have improved compared to the recent multiyear slump — offering hope for increased exit opportunities — rising volatility is clouding the outlook, with dealmakers expecting challenges to persist as regulatory and fiscal uncertainty potentially offset anticipated gains.

That's according to Katten's 2025 Middle-Market Private Equity Report, which drew insights from over 100 US middle-market private equity investors surveyed in late 2024. The report uncovers transactional trends, areas of opportunity, and expectations for the coming year, offering critical guidance for navigating 2025 as dealmakers adjust their strategies after a rebuilding year for US middle-market PE.

Investors surveyed post-election were bullish on all-equity deals, extending a trend Katten identified in our 2023 survey, with 87 percent predicting an increase in all-equity deals in 2025 compared to 2024, as debt markets remained choppy. Optimism toward both platform acquisitions and add-ons that complement these investments suggests that dealmakers saw increasing balance in a strengthening mergers and acquisitions (M&A) landscape.

"The increased confidence we saw from respondents regarding a range of transaction types — platform deals, add-ons and exits — signals the potential for improved dealmaking momentum in a market that has swung from the M&A boom of 2021, when money was cheap and more easily available, to the subsequent slump as interest rates soared," said Kimberly T. Smith, partner and global chair of Katten's Corporate Department. "However, uncertainty surrounding the impact of tariffs on business forecasts is now casting a shadow over some M&A activity."

Developments in the early months of 2025 highlight the underlying challenges many respondents identified in late 2024. Most PE investors expected several challenges to carry over into the coming year — led by economic uncertainty, which 58 percent anticipated will be equally or more challenging to navigate than last year. More than half said the same about the regulatory and compliance environment and the increased cost of capital.

To test how these challenges have impacted outlook over the first quarter of the year, an additional flash survey of nearly 40 dealmakers in mid-March found nearly half (48 percent) were positive to some degree about middle-market PE activity over the course of the year, but more than 60 percent say their outlook has worsened since the beginning of the year.

Still, opportunities remain. Digital or technological transformation was seen as the leading opportunity for US middle-market PE activity in 2025, selected by 79 percent of respondents. When it comes to the most promising investment area in the coming year, business services ranked first, followed by technology, financial services and energy. Health care, manufacturing and sports present additional areas to watch.

In a signal that the deal market appeared to be stabilizing as interest rates moderated and access to capital improved, nearly six in 10 respondents were significantly more confident that deals would progress as planned at the close of 2024 than they were at the end of 2023. In addition, a full 80 percent expected the availability of exit opportunities to increase from last year's relatively sluggish pace.

"The mixed outlook reflects the complex dynamics facing PE investors, who, on the one hand, see short-term upside due to the perceived pro-business and pro-US bent of the new administration. That being said, geopolitical events, tariffs, inflationary concerns and lack of policy specifics tend to be destabilizing," said David Washburn, co-chair of Katten's Mergers & Acquisitions/Private Equity practice. "Our findings suggest the sector may not be out of the woods just yet, partly because of the unpredictability that thus far defines 2025 US deal conditions."

Among the key findings from the report:

• Fifty-seven percent of respondents were significantly more confident that deals would progress as planned compared to the previous year; just 18 percent said the same in our 2023 report.
• Business services, technology, financial services and energy were seen as the industries of greatest opportunity for middle-market PE in 2025.
• Additional areas to watch included health care, manufacturing and sports.
• The 2025 deal drivers: Technology transformation, the improving economy, target performance and increased availability of capital are expected to fuel activity.
• Eight in 10 respondents expected exit opportunities to increase year-over-year, but 37 percent still believed the exit environment will present challenges.
• Eighty-seven percent expected more all-equity deals in 2025; respondents were also optimistic add-ons (85 percent) and platform acquisitions (83 percent) would increase.
• The 2024 hurdles could well persist: More than half of investors who said economic uncertainty and the regulatory and compliance environment challenged their organizations' dealmaking in 2024 anticipated those issues will be equally or more difficult to navigate in 2025.

"The findings from our report suggest dealmakers are shaping their strategies — and outlook — for a more sober post-boom environment," said Christopher Atkinson, co-chair of Katten's Mergers & Acquisitions/Private Equity practice. "Overall, we found the middle-market PE sector positioning itself for growth."

Survey methodology

In December 2024, Katten fielded an online survey using a leading global third-party panel provider platform designed to assess the attitudes and perceptions of middle-market PE investors.

The 114 US-based respondents who completed the survey were primarily private equity investors (78 percent), with a smaller share of independent sponsors (11 percent) and family offices (11 percent). Respondents were engaged in a variety of sectors, including business and financial services, technology, health care, insurance, manufacturing and industrial, media and entertainment, real estate and more. Respondents represent investment management companies with more than $10 million worth of assets under management to upwards of $10 billion.

For more information, download the complete 2025 Middle-Market Private Equity Report here.