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Chart of the week

The exit advantage of middle market private equity

While higher interest rates have challenged the private equity exit environment, middle market investors have experienced much less disruption.

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February 7, 2025 | 2 minute read

Ratio of U.S. private equity exits to investments

Line chart comparing the ratio of U.S. buyout exits to investments over the past decade across the entire U.S. private equity market and the U.S. middle market. Higher interest rates have challenged the private equity exit environment broadly over the last few years, yet middle market investors have experienced much less disruption as they are less sensitive to elevated interest rates than large/mega cap PE.

Source: PitchBook, as of Q3 2024, latest data available.

  • Higher interest rates have dampened the pace of exits for private equity funds over the last few years, reducing distributions to investors and throwing salt in the deal activity flywheel.
  • Following 100bps of rate cuts in 2024, exit and transaction volumes showed signs of recovery near year end.
  • However, middle market buyout funds have regularly outperformed the broader market in returning capital to investors.
  • As the chart shows, exits represented 71% of total deal value for middle market buyout funds in 2024 compared to 47% for the broader market, a gap that has persisted over the last several years.1
  • This highlights how large- and mega-cap buyout funds are more affected by higher-for-longer interest rates due to their greater reliance on leverage to finance new deals and on public market IPOs for exits. In contrast, middle market companies are often strategic targets for public companies or acquired by large/mega-cap private companies.
  • In addition to greater paths for exits, private middle market companies stand out for their ability to offer more attractive growth opportunities at a reasonable price than their large- and mega-cap peers.

  • PitchBook, as of Q3 2024, latest data available.

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