Lower Middle-Market Private Equity: Returns, Multiples, and Deal Data

The lower middle market is the largest, most fragmented, and (by most empirical measures) the highest-returning segment of U.S. private equity. Upper-quartile LMM funds have outperformed large-cap PE by 400 to 500 basis points annually, with realized multiples of 3.75x versus 3.2x for large-cap buyouts and entry pricing roughly 40% cheaper. It is also the most inconsistently defined. This guide compiles the most authoritative publicly available data on LMM PE deal activity, valuations, returns, capital structure, exits, sector composition, and fundraising through 2025. Every statistic is sourced and attributed. Where data conflicts across providers, we present ranges with context rather than false precision.

Key Takeaways

• Upper-quartile lower middle market PE funds have outperformed large-cap PE by 400 to 500 basis points annually, with realized multiples of 3.75x versus 3.2x for large-cap buyouts (CEPRES, Preqin).
• LMM entry multiples average 6 to 8x EBITDA, roughly 40% cheaper than the 12 to 15x typical in large-cap PE (GF Data, PitchBook 2024).
• Average LMM leverage runs 3.2x EBITDA versus 5.9x for deals over $1B, meaning returns are driven more by operational improvement than financial engineering (J.P. Morgan).
• The U.S. lower middle market encompasses roughly 200,000 companies with enterprise values between $10M and $250M, the vast majority founder-owned and underpenetrated by institutional capital.
• Add-on acquisitions represent 73 to 80%+ of all PE deals, with roll-up and buy-and-build strategies serving as the dominant value creation model in LMM PE (Cherry Bekaert).
• Manager selection is the single most consequential variable: top-to-bottom quartile dispersion exceeds 25 percentage points in LMM fund performance (PitchBook/AIC).
• Accredited investors can access lower middle market private equity on a deal-by-deal basis through co-investment groups like CapitalPad, with minimums starting at $25K per deal and no blind-pool fund commitment required.

Contents

1. How “Lower Middle Market” Is Defined
2. Market Size and Capital Formation
3. Deal Activity: Volume, Velocity, and the 2021–2025 Cycle
4. Valuation Multiples: Entry Pricing and the Size Premium
5. Capital Structure and Financing
6. Fund Performance and Returns
7. Fundraising: Concentration, Compression, and Emerging Manager Headwinds
8. Hold Periods and Exits: The Liquidity Bottleneck
9. Value Creation: How LMM Returns Are Actually Generated
10. How to Invest in Lower Middle-Market Private Equity
11. Sector Composition
12. What This Data Tells Investors

How “Lower Middle Market” Is Defined

There is no universal definition of lower middle market private equity. Three parallel frameworks exist, and they produce materially different deal sets. Understanding which definition underpins a given statistic is essential to interpreting it correctly.

By deal size (enterprise value). The American Investment Council defines lower middle market as PE deals of $100M or less in enterprise value.¹ GF Data tracks PE-sponsored M&A with $10M–$500M TEV, reporting sub-tiers at $10–25M, $25–50M, $50–100M, and $100–250M.² Hermes Investment Management notes that some practitioners extend “lower mid-market” to ~$500M median EV.³

By fund size. Many LP programs treat sub-$1B buyout vehicles as the closest operational proxy for LMM-oriented funds. McKinsey’s Preqin-sourced data segments global PE fundraising into <$250M, $250–499M, $500–999M, $1–5B, $5–10B, and >$10B buckets.⁴

By company characteristics. The AIC’s broader framing defines midsize businesses as $11M–$500M in revenue.¹ In practice, LMM target companies typically generate $3M–$30M of EBITDA and $10M–$200M of revenue.

This guide uses all three frameworks and labels them when applied. Statistics drawn from GF Data’s $10M–$500M TEV universe should not be mechanically compared to AIC’s ≤$100M deal-value universe without acknowledging that the underlying deal sets differ.

Market Size and Capital Formation

Global PE Context

Global private equity AUM (excluding venture capital) reached $8.6 trillion as of December 2024.⁵ Paul Weiss’s Preqin-sourced series puts global PE AUM at $7.029T as of Q2 2025 (a record), with $1.712T in dry powder, representing 24% of AUM.⁶ The difference reflects coverage scope: Preqin’s broader figure includes certain growth equity and secondary vehicles.

Global buyout dry powder specifically reached approximately $1.3 trillion by year-end 2024.⁷ In the U.S., middle-market PE funds held $455.8B, roughly half of total U.S. PE dry powder.⁸

Critically, this dry powder is aging. Bain reports that 24% of all dry powder is now four or more years old, up from 20% in 2022. Aged dry powder (undeployed 2+ years) surged from $290B in 2021 to $530B in 2024, an 82% increase.⁷

LMM-Oriented Fund AUM: A Proxy Estimate

No standard “LMM AUM” series exists. One reasonable proxy: sub-$1B funds raised $182B of $589B in global PE fundraising in 2024, about 31% of the total.⁴ Applied to Paul Weiss’s $7.029T global PE AUM, this implies roughly $2.2T in smaller-fund PE AUM. This is an order-of-magnitude estimate, not a precise figure.

The Addressable Market

The U.S. lower middle market encompasses roughly 200,000 companies with enterprise values between $10M and $250M. The vast majority are founder-owned, underpenetrated by institutional capital, and transact through proprietary or lightly intermediated processes. This is a structural feature that sustains entry-multiple discounts relative to larger, heavily auctioned deals.

Deal Activity: Volume, Velocity, and the 2021–2025 Cycle

The Boom-Bust-Recovery Arc

U.S. PE deal activity peaked in 2021 at 6,491 deals worth $969.2B and contracted sharply to 4,710 deals worth $545.4B in 2023, a 44% decline in value.¹ Middle-market buyouts ($25M–$1B EV) followed a similar trajectory, declining to 3,124 deals worth $322.3B in 2023 before recovering to approximately 3,352–3,374 deals worth $358–$374B in 2024, a 17% year-over-year increase and the second-highest level on record.⁸

GF Data’s $10M–$500M TEV universe (the best publicly available proxy for LMM-specific deal flow) recorded 501 transactions in 2021 (a record), declining to 294 in 2023, then rebounding to 379 in 2024 (+28.9% YoY). Through Q3 2025, GF Data tallied 211 transactions, running approximately 27% behind 2024’s pace, with tariff-related uncertainty driving a ~40% quarter-over-quarter decline in Q1 2025.²

At the global level, KPMG reported $2.1 trillion of global PE investment in 2025 across 19,093 deals, reflecting higher total value on fewer deals, consistent with megadeal concentration. The U.S. accounted for $1.1T across 8,232 deals.⁹

LMM Deal Size Benchmarks

Within the AIC’s ≤$100M deal-value segment, median LMM buyout/LBO deal value was approximately $23.0M in 2023 and $24.5M through mid-2024. Median LMM growth/expansion deal value was approximately $12.5M in 2023 and $15.0M through mid-2024.¹

Add-On Acquisitions Dominate Deal Flow

Bolt-on acquisitions represented 72.9–80%+ of all PE deals during 2021–2025, with the ratio of add-ons to platform acquisitions reaching 2.5:1 since 2023. PitchBook tracked 4,908 bolt-on acquisitions in full-year 2024. In the LMM specifically, roll-ups accounted for over 80% of all deals in 2024.¹⁰

GF Data found that add-on acquisitions now command a premium of approximately 0.3x EBITDA over platform deals, a reversal of historical norms that reflects the market’s preference for de-risked growth through consolidation.²

Valuation Multiples: Entry Pricing and the Size Premium

The $10M–$500M TEV Time Series

The CIBC US Middle Market Monitor (sourced from GF Data) provides the most consistent public time series for LMM entry pricing. Average EBITDA purchase multiples for $10M–$500M sponsored LBOs:¹¹

Year	Avg EV/EBITDA
2016	6.7x
2017	7.2x
2018	7.2x
2019	7.1x
2020	7.0x
2021	7.6x
2022	7.6x
2023	7.2x
2024	7.2x
H1 2025	7.2x

Multiples peaked at ~7.6x in 2021–2022 and settled into a post-rate-hike plateau around ~7.2x, still above the long-run 2003–2020 average of ~6.7x.¹¹

The Intra-LMM Size Premium

Within the LMM, a massive valuation spread exists by deal size. GF Data reports through Q3 2025:²

TEV Tier	Avg EV/EBITDA
$10–25M	5.9x
$25–50M	6.6x
$50–100M	8.7x
$100–250M	10.0x
$100–500M (platforms)	9.8x

The spread between sub-$100M platforms (7.0x average) and $100–500M platforms (9.8x average) was 2.8 turns of EBITDA through Q3 2025, a structural advantage for buyers who can acquire small and scale through add-ons.²

For comparison, PitchBook reported median EV/EBITDA of 15.5x for deals over $1B and a broader LBO average of 11.0x in 2024.⁸ Axial’s platform data showed an average EBITDA multiple of 6.07x in 2025 for its LMM deal flow, above the five-year average of 5.70x.¹²

Why Entry Multiples Matter Mechanically

The 40–50% entry-multiple discount to large-cap PE directly affects three things: feasibility of deleveraging, margin for error if exit multiples compress, and the opportunity for multiple arbitrage through buy-and-build strategies. A company bought at 6x EBITDA that grows through add-ons and exits at 8–10x generates meaningful return from multiple expansion alone. That path is largely unavailable to a fund buying at 12–15x.

Capital Structure and Financing

Debt Multiples in the Middle Market (2016–H1 2025)

The CIBC / GF Data series shows total leverage in $10M–$500M LBOs:¹¹

Year	Total Debt/EBITDA	Bank Debt	Non-Bank Debt
2016	3.9x	3.0x	0.8x
2019	4.0x	3.2x	0.7x
2021	4.0x	3.3x	0.7x
2023	3.6x	3.0x	0.6x
2024	3.7x	3.1x	0.6x
H1 2025	4.0x	3.1x	0.9x

Total leverage fell to ~3.6x in 2023 and recovered to ~4.0x in H1 2025. The non-bank component (a proxy for unitranche / direct lending) rose notably in H1 2025 as private credit continued displacing traditional bank lending.¹¹

Private Credit Now Dominates LMM Financing

Direct lending captured approximately 90% of middle-market LBO lending in 2024, up from 36% in 2014. U.S. middle-market loan volume rose 49% in 2024 to $297B, with LBO lending specifically reaching $55B (+66% YoY).¹³ Bain confirms that private credit remains the lender of choice for sub-$1B deals even as the syndicated market reopens for larger borrowers.¹⁴

LMM Leverage Versus Large-Cap Leverage

Average LMM leverage of 3.2x EBITDA for companies under $250M in enterprise value compares to 5.9x for those over $1B. This conservative capital structure is a structural feature of LMM investing: it reduces downside risk but also means equity returns must be driven more by operational improvement and less by financial engineering.¹⁵

Fund Performance and Returns

The Size Effect: Smaller Funds Outperform

Multiple independent datasets confirm that smaller PE funds generate higher returns, though with wider dispersion.

CEPRES data (2000–2004 vintages). LMM funds (under $1B) achieved an upper-quartile net IRR of 25.6% and median net IRR of 15.7%, compared to large/mega funds (over $1B) at 21.6% and 12.1%, representing outperformance of roughly 400 basis points at the upper quartile. The same analysis found upper-quartile U.S. mid-market buyout funds have outperformed large-cap funds by over 500 basis points annually on a long-term basis.¹⁶

StepStone (as of 6/30/2025). A StepStone performance report for a large LP program shows Small/Middle Buyouts at ~18.4% IRR and ~1.8x TVM versus Large/Global Buyouts at ~9.1% IRR and ~1.3x TVM. This is a portfolio-level observation, not a universe median, but it illustrates the magnitude of outcome differences LPs observe.¹⁷

NBER (2025 working paper). A landmark study concludes that returns decrease with fund scale: a 1% increase in fund size reduces net IRR by ~0.1 percentage points. Larger funds do larger deals, and those deals perform worse.¹⁸

PitchBook (2024). Middle-market funds delivered a 12.7% one-year horizon return versus just 7.6% for megafunds. Funds under $250M generated a rolling IRR of 12.7% versus 3.4% for the largest funds over $1B.⁸

Realized Multiples (MOIC and TVPI)

Preqin data shows middle-market transactions generated realized capital multiples of 3.75x compared to 3.2x for large-cap buyouts, a 17% premium.¹⁶ McKinsey’s 2026 report found specialist buyout funds achieved TVPI of 2.2x versus 2.1x for generalist peers, with pooled IRRs of 17% versus 13% across 2010–2022 vintages.¹⁹

Burgiss historical data places average buyout fund TVPI in the range of 1.41x–1.61x across various vintage periods, while top-quartile funds deliver 2.15x TVPI and 22.5% IRR.²⁰

Broad PE Index Benchmarks

The Cambridge Associates US Private Equity Index reported annualized net returns of 15.8% (5-year) and 15.1% (10-year) as of 12/31/2024, with a 1-year return of 8.1%.²¹ For H1 2025, the index returned 3.9%, with growth equity outperforming buyouts (4.9% vs 3.6%).²²

Alpha Over Public Markets

A 2024 academic study using Burgiss data on over 5,000 U.S. funds found buyouts delivered statistically significant annual alpha of approximately 2.5%.²⁰ Cambridge Associates reported the U.S. PE Index generated +219 basis points of value-add over the Russell 3000 PME and +480 basis points over the MSCI World PME on a 10-year horizon as of Q3 2024.²³

PitchBook/AIC data shows KS-PME values of ≥1.10 for 2010–2018 vintages versus the S&P 500, with the 2014 vintage reaching approximately 1.25 (25% outperformance). However, 2021–2023 vintages currently show KS-PME below 1.0 due to J-curve effects and the S&P 500’s Magnificent Seven-driven performance. When benchmarked against small-cap indices (arguably the more appropriate public comparator for LMM targets), alpha narrows to 1.04x–1.12x KS-PME.²³

DPI: The Defining Challenge of This Cycle

Distributions to paid-in capital have become the central pressure point. McKinsey’s 2026 report found five-year rolling DPI as a share of AUM hit its lowest recorded level in 2025, with distributions declining to roughly 6% of AUM in H1 2025 against a 10-year average of 14%.¹⁹ Bain confirmed that LP contributions equaled or outweighed distributions in five of the last six years. The distribution yield fell from an average of 25% of NAV during 2013–2021 to just 12% during 2022–2024.⁷

Return Dispersion: Why Manager Selection Is Everything

The spread between top-quartile and bottom-quartile LMM fund performance consistently exceeds 1,000 basis points.¹⁵ PitchBook/AIC data for the 2016 vintage shows top-decile IRR exceeding 35% versus bottom-decile below 10%, a dispersion of more than 25 percentage points. StepStone notes that a higher share of sub-$500M Fund I vehicles delivered above-median returns than larger first-time funds.²⁴

This dispersion is structurally wider in LMM than in large-cap PE, driven by higher operational variance, less intermediation, greater sensitivity to individual deal outcomes, and smaller customer/key-person concentration in portfolio companies.

Performance Comparison: LMM vs. Large/Mega Buyout

Metric	LMM / Small Buyout	Large / Mega Buyout	Source
Upper-quartile net IRR	25.6%	21.6%	CEPRES (2000–04 vintages)
Median net IRR	15.7%	12.1%	CEPRES (2000–04 vintages)
Realized MOIC	3.75x	3.2x	Preqin / FS Investments
Entry EV/EBITDA	6–8x	12–15x	GF Data / PitchBook (2024)
Average leverage	3.2x	5.9x	J.P. Morgan / PitchBook
StepStone portfolio IRR	~18.4%	~9.1%	StepStone (6/30/2025)
StepStone portfolio TVM	~1.8x	~1.3x	StepStone (6/30/2025)

Fundraising: Concentration, Compression, and Emerging Manager Headwinds

The Structural Downturn

Global PE fundraising declined from approximately $608.8B across 1,025 funds in 2024 to $407.6B across 543 funds in 2025.⁹ Bain reports 2025 buyout fundraising fell 16% to $395B with a 23% decline in fund closes.¹⁴

In the U.S. specifically, 2025 recorded the fewest PE fund closes since 2013 at just 327.²⁵ The median fundraising timeline for middle-market funds stretched to 17.5 months in 2024, the longest since 2011. Funds under $1B averaged 33 months to close.

Capital Concentration Is Squeezing Smaller Managers

In 2025, funds raising less than $500M accounted for just 13% of total fundraising versus 17% five years earlier.²⁶ U.S. funds under $250M raised only $3.9B in the first three quarters of 2025, just 5.5% of total middle-market capital raised, the lowest share on record. Capital concentrated sharply upward, with 19 vehicles between $1B and $5B accounting for 64% of all middle-market capital raised.²⁵

Paul Weiss reports that in Q3 2025, the 10 largest PE funds comprised 61% of quarterly capital raised.²⁷

2024 Fund-Size Distribution (Global PE)

McKinsey/Preqin data for 2024 global PE fundraising of $589B:⁴

Fund Size	Capital Raised ($B)	Share
<$250M	$56B	9.5%
$250–499M	$58B	9.8%
$500–999M	$68B	11.5%
$1–5B	$229B	38.9%
$5–10B	$58B	9.8%
>$10B	$120B	20.4%

Sub-$1B funds, the closest LP proxy for LMM-oriented capital, raised $182B in 2024, about 31% of total global PE fundraising.

Fee Compression

Preqin reports that mean management fees for 2024-vintage buyout funds declined to 1.74%, down from 1.85% in 2023, with further compression pressure expected through 2026.²⁸ The industry standard remains 20% carried interest (reported by 71% of sampled funds) with an 8% preferred return hurdle (67% of funds).²⁹

Hold Periods and Exits: The Liquidity Bottleneck

Hold Periods Are at or Near All-Time Highs

Multiple sources converge: hold periods have extended well beyond historical norms. Bain reports buyout holding periods at exit hover around seven years, up from roughly five to six years in 2010–2021.⁷ McKinsey reports an average of 6.6 years in 2025 versus 6.1 years for 2011–2020.³⁰ S&P Global shows sector-level increases: industrials averaged 7.5 years as of mid-2025, up from 5.5 years in 2020.³¹

Companies held four or more years now account for 61% of all PE-owned assets. Bain found that roughly 52% of total buyout-backed inventory (over 16,000 companies globally) has been held for more than four years, the highest on record and 10 percentage points above the five-year average.⁷

Exit Values Crashed and Partially Recovered

U.S. PE exit value collapsed from a record ~$850B+ in 2021 to $302B in 2022 and $277B in 2023, a peak-to-trough decline of approximately 66%. Recovery to $413B in 2024 brought activity back to the 10-year average of ~$399B, and through Q3 2025, exit value reached $472B, surpassing full-year 2024.⁸

Globally, exit data varies by definition. KPMG reports global PE exit value in 2025 at ~$1.2–$1.3 trillion across 3,162 exits.⁹ Bain’s buyout-focused view shows global buyout-backed exit value of $717B (+47% YoY) in 2025, but emphasizes megadeals disproportionately drove the recovery.⁷ S&P Global reports 3,149 exits globally with an announced value of $412B, noting lower returns per exit deal.³²

Exit Routes in the Middle Market

Over 90% of middle-market exits occur through strategic sales or sponsor-to-sponsor transactions. From 2018 to 2022, approximately 97% of middle-market exits were via these two channels, with IPOs representing a negligible portion. Sponsor-to-sponsor deals surged 141% year-over-year in 2024.¹⁰

Continuation Vehicles as a Third Exit Channel

GP-led secondaries grew from roughly 5% of PE exit activity in 2020–2021 to 13% in 2024 and approximately 19% in H1 2025. Total secondary market volume hit a record $162B in 2024 (+45% YoY) and was on pace to exceed that in 2025. Notably, 47% of secondary investment firms surveyed by Lazard reported shifting focus to middle-market continuation vehicle deals in 2025.³³

The Unrealized Overhang

Global PE portfolios held $3.8 trillion in unrealized value across approximately 32,000 companies as of 2025. In the U.S., PE-backed company inventory reached 12,552 by Q2 2025, with approximately 4,500 middle-market companies waiting to be sold, with 36.2% held for five or more years. At the recent exit pace, current inventory represents 8.5–9 years of exits.⁷

Value Creation: How LMM Returns Are Actually Generated

The Shift from Financial Engineering to Operations

The era of easy returns through leverage and multiple expansion is over. Revenue growth now accounts for 54% of value creation in PE deals, multiple expansion 32%, and margin expansion just 14%. For 2024 exits specifically, Moonfare/KPMG data showed revenue growth driving 71% of value creation.³⁴

McKinsey notes that roughly two-thirds of total returns for buyout deals entered after 2010 (and exited before 2021) came from multiple expansion and leverage, levers that have weakened significantly in the post-2022 rate environment.¹⁹

Mid-Cap Managers Grow Companies Faster

Morgan Stanley found in 2025 that mid-cap managers grow revenue and EBITDA by nearly triple the amount of their larger-cap peers from purchase to exit. Pantheon data shows average revenue growth of approximately 116% from entry to exit for mid-cap firms, 2.7x higher than large-cap firms.¹⁶

Buy-and-Build Is the Dominant Strategy

The combination of cheap entry multiples (6–8x), a vast pool of fragmented acquisition targets, and the ability to exit at higher multiples (through both scale and professionalization) makes buy-and-build the de facto standard operating model in LMM PE. With add-ons representing 73–80%+ of all PE deals and commanding a 0.3x EBITDA premium over platform deals, the economics are clear: PE firms pay more for the right to bolt acquisitions onto existing platforms than they do for the platforms themselves. This dynamic extends to the independent sponsor and search fund segment of LMM PE, where roll-up strategies have become the dominant approach to value creation.

How to Invest in Lower Middle-Market Private Equity

The data above makes a clear case for the lower middle market as an asset class: higher returns, lower entry multiples, conservative leverage, and a vast fragmented opportunity set. The harder question is access. Unlike large-cap PE, where brand-name firms run institutionalized fundraising processes, the lower middle market is structurally difficult to enter. The best-performing managers are often too small to appear on institutional radar, deal flow is relationship-driven, and minimum commitments can be either prohibitively high or impossible to find.

There are three realistic paths into the asset class, each with different tradeoffs on minimums, diversification, and deal-level control.

1. Dedicated LMM Fund Commitments

The traditional route is committing capital to a blind-pool fund managed by an LMM-focused GP. Typical fund sizes range from $100M to $1B, with LP minimums of $1M to $10M+ and a 10-year lockup with possible extensions. Investors get diversified exposure across 10 to 20 portfolio companies, professional portfolio construction, and the benefit of an established team’s sourcing network and operating playbook.

The tradeoffs are real. Blind-pool commitments mean limited visibility into specific deals before they close. The J-curve means capital is called gradually and returns are back-loaded. And as the fundraising data in this guide documents, the concentration problem is severe: sub-$250M funds captured just 5.5% of middle-market capital raised in 2025, and many of the top-performing LMM managers are either closed to new LPs or require institutional-scale commitments that exclude most individual investors and smaller family offices.

2. Direct Co-Investment Alongside GPs

Some family offices and institutional LPs negotiate co-investment rights with GPs they already back, allowing them to invest directly in specific deals on top of their fund commitment. This gives investors deal-level selection, lower or no fees on the co-invest tranche, and concentrated exposure to their highest-conviction opportunities.

The limitation is that co-invest access requires existing GP relationships and usually a meaningful fund commitment to earn the right. Check sizes typically start at $500K or more per deal, and the investor needs the operational capacity to evaluate opportunities and commit capital within days or weeks. For those who have the relationships and infrastructure, co-investment is one of the most attractive ways to access LMM PE. But the relationships themselves are the bottleneck, and building them from scratch takes years.

3. Deal-by-Deal Access Through a Co-Investment Group

A third path has developed over the past several years: deal-by-deal co-investment groups that allow accredited investors to evaluate and select individual LMM transactions without a blind-pool commitment. CapitalPad is one of the most widely used private equity co-investment groups in the lower middle market, presenting investors with individual deals after the operator has signed an LOI and CapitalPad has completed its own diligence process. Check sizes start at $25K per deal.

This model addresses the two primary access barriers in LMM PE. First, the relationship bottleneck: investors receive curated deal flow without needing existing GP relationships or institutional-scale fund commitments. Second, the minimum commitment barrier: investors allocate capital on a deal-by-deal basis with no fund-level lockup, giving them direct control over portfolio construction across operators, industries, and deal structures.

The tradeoffs are the ones inherent to any deal-by-deal private equity structure: each position is illiquid, diversification must be built across multiple deals over time, and access is limited to accredited investors.

Sector Composition

Technology and Software

Technology accounted for approximately 23% of PE deployment by value and 26% by volume globally in 2024. KPMG reported TMT at $654B globally in 2025.⁹ Software PE deal value reached $134.8B across 926 deals in 2024 (+32.4% YoY). Technology led add-on activity with 616 bolt-on deals in 2024. GF Data reported tech multiples compressing sharply from 10.2x in 2023 to 8.1x in 2024, the steepest decline of any sector tracked.²

Healthcare Services

Healthcare represented an estimated $104B in U.S. PE activity in 2024 (+17.7% YoY), with 1,049 tracked deals of which 621 (59%) were add-ons. Dental care led sub-sector activity with 161 deals (85% add-ons), while healthcare IT was the busiest healthcare category in 2025 with 151 deals. Lincoln International’s data showed healthcare experiencing the greatest enterprise value growth for three consecutive quarters in 2024. Regulatory scrutiny is a growing headwind: 15 states now have healthcare transaction review laws.³⁵

Business Services

Business services ranked as the number-one sector by total U.S. PE deal activity in 2024. GF Data reported multiples expanding from 6.3x to 7.8x between 2024 and Q1 2025, the most significant expansion of any tracked sector. Since 2021, PE firms have acquired stakes in 11 of the top 30 U.S. accounting firms. Lincoln International data consistently showed business services delivering above-average enterprise value growth.²

Manufacturing and Industrials

Manufacturing represented 21.2% of PE deal count in 2024, down from 24.5% in 2023. KPMG reported Industrial Manufacturing at $327.6B in global PE investment value in 2025.⁹ GF Data reported manufacturing multiples improving modestly from 6.5x to 6.9x in 2024 before pulling back to 6.1x in Q1 2025. Above-average industrial growth appeared in late 2025, driven by reshoring policy momentum.²

Consumer and Residential Services

Consumer was the weakest sector, experiencing the lowest enterprise value growth in the Lincoln PMI and the only industry with year-over-year EBITDA declines. However, consumer residential services (HVAC, plumbing, electrical, pest control, landscaping) emerged as a major roll-up frontier, with three times as many PE buyers active versus five years ago. These businesses appeal to PE because recurring maintenance contracts create SaaS-like revenue predictability.¹⁰

What This Data Tells Investors

The 2021–2025 data reveals a lower middle-market PE environment with intact structural advantages and intensifying operational demands.

The return premium persists. Realized multiples of 3.75x versus 3.2x for large-cap, 400–500 basis points of net IRR outperformance, entry multiples roughly 40% cheaper, and conservative leverage of 3.2x versus 5.9x. These are not artifacts of a favorable vintage. They reflect structural features of the segment: fragmentation, operational improvement potential, and proprietary deal sourcing.

But three forces are reshaping the opportunity set. First, the $3.8T unrealized value overhang and record-low DPI are forcing GPs to innovate on liquidity through continuation vehicles, NAV lending, and secondaries. Second, fundraising concentration is creating a bifurcated market where established LMM firms raise ever-larger successor funds while emerging managers face near-impossible capital formation. Third, operational value creation has permanently displaced multiple expansion as the primary return driver.

Manager selection has never been more consequential. With top-to-bottom quartile dispersion exceeding 25 percentage points, the difference between a skilled LMM operator and a mediocre one is the difference between exceptional returns and meaningful capital destruction.

Sources & References

¹ American Investment Council, “Private Equity and Main Street: An Outlook on the Middle Market” (September 2024). PitchBook-derived deal data. Source ↩

² GF Data, quarterly M&A reports for $10M–$500M TEV transactions, 2021–2025. Source ↩

³ Hermes Investment Management, “Private Equity Insights Report” (March 2026). Source ↩

⁴ McKinsey & Company, “Global Private Markets Report 2025.” Preqin-sourced fundraising data. Source ↩

⁵ Preqin, “Private Equity: Shaping the Future of Innovation” (2024). Source ↩

⁶ Paul Weiss, “PE Fundraising at a Glance” (Q4 2025). Preqin-sourced. Source ↩

⁷ Bain & Company, “Global Private Equity Report 2026.” Source ↩

⁸ PitchBook, “2024 Annual US PE Middle Market Report” and “Q1 2024 US PE Middle Market Report.” Source ↩

⁹ KPMG, “Global Private Equity Investment Hits Four-Year High in 2025” (January 2026). Source ↩

¹⁰ Cherry Bekaert, “Private Equity Report: 2024 Trends & 2025 Outlook.” Source ↩

¹¹ CIBC US Middle Market Monitor (Q3 2025). GF Data-sourced. Source ↩

¹² Axial, “Top 20 PE Firms Buying Lower Middle Market Companies (2025).” Source ↩

¹³ Capstone Partners, “Middle Market Leveraged Finance Update.” Source ↩

¹⁴ Bain & Company, “Global Private Equity Report 2026: Gaining Traction.” Source ↩

¹⁵ J.P. Morgan Asset Management, “A Big Role for Small and Middle-Market Private Equity Investments.” Source ↩

¹⁶ CAIA Association / FS Investments, “Returns In Focus: Value Creation Shines in the Lower Middle Market” (August 2024). Source ↩

¹⁷ StepStone, Private Equity Full Performance Report (Q2 2025). Via SDCERS. Source ↩

¹⁸ NBER, “Does Fund Size Affect Private Equity Performance?” Working Paper 33596 (2025). Source ↩

¹⁹ McKinsey & Company, “Global Private Markets Report 2026: Private Equity: Clearer View, Tougher Terrain.” Source ↩

²⁰ Burgiss/MSCI, PE benchmarking and academic research. Fisher College of Business (2025 study). Source ↩

²¹ Cambridge Associates, “US PE/VC Benchmark Commentary: Calendar Year 2024” (July 2025). Source ↩

²² Cambridge Associates, “US PE/VC Benchmark Commentary: First Half 2025.” Source ↩

²³ Nasdaq / eVestment, “Assessing Alpha in Private Equity Returns with Public Market Equivalent Analysis.” Source ↩

²⁴ StepStone Group, “The Case for Emerging Managers.” Source ↩

²⁵ PitchBook, “Middle-Market PE Feels the Chill of Fundraising Slowdown.” Source ↩

²⁶ McKinsey & Company, “Global Private Markets Report / Private Equity” (2026). Source ↩

²⁷ Paul Weiss, “PE Fundraising at a Glance” (Q3 2025). Source ↩

²⁸ Preqin, “Private Capital Fees Bow to Fundraising Pressure in 2024.” Source ↩

²⁹ ILPA, “2021 Industry Intelligence Report: What is Market in Fund Terms?” Source ↩

³⁰ McKinsey & Company, “Beating the Odds: How Private Equity Firms Can Improve Exit Prospects.” Source ↩

³¹ S&P Global Market Intelligence, “PE Secondaries Market Hungry for Capital; Average Buyout Holding Periods Extend” (June 2025). Source ↩

³² S&P Global Market Intelligence, “Private Equity Exits Rise, Returns Fall in 2025.” Source ↩

³³ Lazard, “Secondary Market Report 2024.” Source ↩

³⁴ Moonfare, “Private Equity Value Creation: Strategies & Examples.” Source ↩

³⁵ Private Equity Stakeholder Project, “Private Equity Healthcare Deals: 2024 in Review.” Source ↩