Covelent Private Equity Mid-Market Forward Focus Report 2025

Following a period of volatility, mid-market private equity is experiencing a resurgence, driven by stabilising macroeconomic conditions, evolving regulatory landscapes, and an increasing emphasis on operational value creation. The Covelent Private Equity Mid-Market Forward Focus Report 2025 looks at the underlying trends in this space, offering insights into the forces shaping investment strategies and opportunities for the year ahead.

This report presents a comprehensive overview of the factors influencing mid-market PE, highlighting key shifts in valuations, exit strategies, regulatory changes, and sector-specific trends.

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Key Findings

1. Value Creation Takes Centre Stage

In a competitive environment, PE firms are shifting their focus from financial engineering to hands-on operational improvements. Firms that drive efficiency, digital transformation, and strategic repositioning will lead in value creation. AI, automation, and supply chain optimisation are now critical to sustaining high returns.

As valuations remain elevated, investors are prioritising active portfolio management and targeted performance enhancements, ensuring that businesses meet evolving market demands.

2. Diverging Economic Growth Is Creating New Investment Hotspots

Global growth disparities are shaping the mid-market investment landscape.

• The US is projected to grow at 2.3%, reinforcing its status as the leading destination for M&A, particularly in technology, healthcare, and consumer-driven sectors.
• Europe remains fragmented, with Benelux and Scandinavia outperforming while Germany and France struggle due to weaker industrial performance.
• The UK is poised for a cautious recovery, but regulatory uncertainty could accelerate exit activity.
• The Middle East is witnessing a surge in deal volume, up 21% year-over-year, supported by economic diversification initiatives and sovereign capital deployment.

Investors who align capital allocation with regional growth dynamics will be best positioned to unlock value in 2025.

3. Regulatory Shifts in Europe and the UK Are Reshaping Deal Dynamics

Policy changes in Europe and the UK are altering the way deals are structured and executed.

• In the UK, potential revisions to capital gains tax and increasing scrutiny on foreign investments are affecting exit strategies and deal structuring.
• In the EU, a shift towards growth-oriented regulation is fostering more strategic consolidations and sector-driven M&A activity.
• US antitrust policies are evolving, with a more relaxed stance expected to accelerate tech and healthcare deal approvals.

Regulatory uncertainty remains a key factor for investors, necessitating agility in structuring transactions and risk mitigation strategies.

Related capabilities: Due Diligence, PMI, M&A Strategy, Divestitures

4. Sector-Specific Trends Defining the Mid-Market

Across industries, PE investment priorities are being shaped by structural shifts and macroeconomic drivers.

• Energy Security: Investment in renewables, battery storage, and energy efficiency solutions is accelerating amid geopolitical tensions and corporate net-zero commitments.
• Reshoring: Supply chain disruptions have increased the focus on regional manufacturing hubs, particularly in semiconductors, industrials, and logistics.
• Technology & AI: AI-driven automation, cybersecurity, and enterprise SaaS remain high-growth areas, with mid-market firms increasingly acquiring niche technology providers.
• Consumer Markets: Health and wellness, premium pet care, and sustainable goods are witnessing strong investor interest as consumer preferences shift towards digital convenience and responsible consumption.

Firms that anticipate sector-specific inflection points will gain a competitive edge in deal sourcing and execution.

5. Corporates in Focus: A Shift in M&A Behaviour

Corporate M&A in the mid-market remains selective, with firms prioritising high-value, strategic transactions over opportunistic acquisitions.

• Japan has emerged as a bright spot, with corporate deal volumes increasing 4% year-over-year, reflecting a broader shift towards portfolio rationalisation.
• Cross-border M&A is rising, with corporates using acquisitions as a lever for geographic expansion and capability enhancement.
• Sectors such as AI, healthcare, and automation are witnessing the most activity, as firms seek to enhance productivity and operational resilience.

While PE firms are driving buy-and-build strategies, corporates are becoming more disciplined in their dealmaking, focusing on long-term value.

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Looking Ahead: The Investment Landscape in 2025

United States: A Strong but Policy-Dependent Market

• Mid-market M&A remains active, particularly in tech, healthcare, and industrial automation.
• The Federal Reserve's rate-cut trajectory will shape deal financing conditions.
• Trade policy volatility remains a risk, requiring careful supply chain reassessment.

United Kingdom: Growth with Caution

• Expected rate cuts could improve financing conditions, but exit timing remains critical.
• Regulatory uncertainty around capital gains tax may influence seller behaviour.
• International expansion will remain a key focus for UK mid-market firms.

Europe: Fragmented Growth, Selective Opportunities

• Benelux, Spain, and the Nordics are leading in deal volume, while Germany and France remain under pressure.
• The shift towards consolidation strategies and cross-border platforms is accelerating.
• ECB rate cuts are providing some relief, but valuation discipline remains key.

Middle East: Strong Expansion, but Valuation Discipline is Key

• Sovereign-backed capital is fuelling M&A activity in tech, healthcare, and logistics.
• Infrastructure and renewable energy continue to be high-priority investment themes.
• Exit markets remain underdeveloped, requiring PE firms to innovate on liquidity solutions.

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Mid-market private equity in 2025 is poised for growth but will require a more agile, value-driven investment approach. As economic cycles diverge and regulatory landscapes shift, firms that focus on operational excellence, sector-specific resilience, and strategic capital deployment will emerge as market leaders.

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