Private equity’s middle market is regaining momentum, but beneath the surface, structural pressures are building. Evan Berta, an associate at Hunt Scanlon Ventures, examines PitchBook’s latest research and what it reveals about deal activity, exit dynamics, and the growing role of talent in sustaining value creation.
PitchBook’s latest report, 2025 Annual US PE Middle Market Report, highlights a market that is stabilizing but not yet fully normalized. Deal activity rebounded in 2025, with value rising 8.5 percent year-over-year to $410.7 billion across more than 4,000 transactions, supported by improving sentiment and a more accommodative financing environment.
The recovery, however, is uneven. Deal sizes declined into year-end, signaling broader participation but more cautious underwriting. At the same time, more than 6,000 PE-backed middle-market companies remain unsold, with holding periods extending and valuation expansion constrained.
The result is a market that is active, but increasingly dependent on execution.
Execution Replaces Expansion
Valuations remained stable in 2025, with multiples expected to trend flat or slightly downward. As a result, value creation is shifting away from financial engineering and deeper into operations.
Firms are relying more heavily on execution, sector expertise, and operational improvement to generate returns. That shift is compounded by a growing pipeline of older, lower-margin assets coming to market.
“As multiple expansion becomes less reliable, the burden shifts directly onto leadership teams to drive performance through execution, not financial engineering,” said Evan Berta, an associate at Hunt Scanlon Ventures.
Investors are underwriting deals with greater emphasis on durability and operational complexity, reflecting a more disciplined approach to value creation.
Exits Return, But Not Uniformly
Exit activity improved in 2025, with more than 1,000 transactions generating $140.4 billion in value and surpassing pre-pandemic levels.
But the recovery is not uniform.
“As multiple expansion becomes less reliable, the burden shifts directly onto leadership teams to drive performance through execution, not financial engineering.”
Middle-market exits were driven by consistency rather than scale, with sponsor-to-sponsor transactions accounting for more than 60 percent of total value as corporate buyers remained cautious. This reflects a more insular market dynamic, where financial sponsors are increasingly transacting with one another.
“Exit activity is improving, but the reliance on sponsor-to-sponsor transactions suggests that firms are still navigating a constrained buyer universe, which puts more pressure on operators to present clean, executable growth stories,” states Mr. Berta.
Holding periods also continue to stretch, reinforcing the importance of sustained performance over longer investment horizons.
Capital Concentrates, Competition Intensifies
While deal and exit activity improved, fundraising declined sharply, falling more than 40 percent year-over-year. Capital is concentrating among a smaller group of large managers, reshaping the competitive landscape.
Emerging managers face greater challenges raising capital, while larger platforms benefit from scale and institutional relationships. The result is a more bifurcated market where differentiation is increasingly tied to execution.
“Capital concentration is forcing firms to differentiate more clearly through talent, particularly in how they build operating teams and execute across their portfolios,” said Mr. Berta.
Organizational capability is becoming a central driver of competitive advantage.
AI Speeds the Process, But Talent Limits the Outcome
AI is beginning to reshape deal execution, with timelines shortening and diligence processes becoming more efficient.
“The firms that outperform in this environment will be those that treat talent as a core lever of value creation, not a supporting function.”
At the same time, it is introducing new complexity. In sectors such as software, AI is both an enabler and a source of disruption, creating uncertainty around valuation and long-term durability.
“AI is accelerating how deals get done, but it is also raising the bar for the kind of leadership required to operate these businesses, particularly in sectors facing disruption,” claims Mr. Berta.
Technology may improve speed, but it does not replace judgment.
The Talent Equation Becomes Central
Across dealmaking, exits, and fundraising, a consistent theme emerges: execution is becoming the primary driver of returns.
And execution is a function of talent.
As firms navigate longer holding periods and greater operational complexity, leadership quality is becoming central to outcomes. The ability to professionalize businesses, scale operations, and integrate new technologies is no longer optional.
“The firms that outperform in this environment will be those that treat talent as a core lever of value creation, not a supporting function,” said Mr. Berta.
For executive search firms and human capital advisors, this expands the mandate. And for investors, it reinforces a broader shift.
Returns are no longer just built in the model. They are built in the organization.
Article By
Evan Berta
Evan Berta is Editor-in-Chief of ExitUp, the investment blog from Hunt Scanlon Ventures designed for professionals across the human capital M&A sector. Evan serves as an Associate for Hunt Scanlon Ventures, specializing in data analysis, market mapping, and target list preparation.
