Alternative Investments Review – Outlook for 2025

In our annual review, we identified significant potential in the mid-market, which is characterized by low leverage, a focus on growth and operational improvement, and established, proven business models. Companies in this market are too small for public offerings, positioning them as attractive acquisition targets, especially in times of economic uncertainty. In addition, we expect an increase in acquisitions of non-core divisions of companies, which hold significant potential for as-yet-unrealized value creation. In times of crisis, these companies demonstrate high resilience and more effective management compared with other alternatives in the market.

A new PitchBook report analyzes the US middle market, highlighting the resilience of businesses in this market and their ability to adapt to change. The report focuses in particular on the central role of private equity funds in helping businesses meet challenges, expand their operations and drive long-term growth.

Some statistics:

• In 2022, middle-market companies (employing 50–250 people) contributed approximately $24.2 trillion in business spending.
• The market comprises approximately 300,000 businesses, generating total annual revenue of $13 trillion and employing more than 40 million people – roughly 30% of the private-sector workforce.
• In 2023, middle-market revenue growth peaked at 12.4%, while employment growth is expected to reach 8.7% in 2024.

Current market conditions:

• Private equity activity in the middle market, comprising deals of up to $500 million, has remained stable despite the challenges involved in executing transactions.
• Growth equity deals reached record highs in 2024, driven mainly by direct capital injections, with an emphasis on technology-based sectors.
• Median financial metrics point to stability, with fund managers contributing a larger share of equity in response to the rising cost of leverage.

Sectors:

These funds are directing most of their attention to sectors such as SaaS, Healthtech, fintech and cleantech, thanks to the business resilience and high growth potential they offer. Particularly significant opportunities are emerging in sectors such as cybersecurity, where demand is driven by the continuing rise in the scale of digital threats.

Case study:

The $350 million take-private acquisition of ZeroFox by Haveli Investments is a prominent example of the growing focus on the cybersecurity sector. The deal highlights the advantages of private ownership, which enables operational improvement and strategic flexibility in this competitive sector.

Looking ahead:

The US middle market continues to be a central and attractive component of the private equity investment landscape. With approximately 200,000 active companies, the market offers a wide range of investment opportunities. Despite a possible slowdown in the pace of deal execution, interest in this market remains high, particularly in family-owned and founder-owned companies. Moreover, the Dry Powder (capital available for investment) accumulated in private equity funds strengthens the potential for increased activity in this market, underscoring the strategic importance of the middle market as a focal point for future investment.

Disclaimer: Nothing in this publication constitutes an offer to the public or an invitation to make any investment; it is a publication and presentation of general information only. The article and its contents rely on information, publications and data received from third parties, which were assumed to be accurate without the company having examined or verified their accuracy. The information presented in this publication does not constitute investment advice/marketing or a substitute for investment advice/marketing tailored personally and specifically to each individual, taking into account their data, needs, financial situation, circumstances and investment objectives.