January 7, 2026
M&A Outlook: Will PE Ride to the Rescue of the Middle Market in 2026?
PwC’s US Deals 2026 Outlook notes that middle market activity was “underwhelming” in 2025, and cites the sector’s vulnerability to tariff shocks and enhanced immigration enforcement as key factors that created additional uncertainty for middle market companies during 2025. While less volatility in these areas and a more favorable interest rate environment may help improve the middle market climate in 2026, PwC says a lot depends on what PE firms do. Here’s an excerpt:
The potential middle-market swing factor for 2026 is the role of private equity buyouts and exits. PE firms now hold more dry powder and older portcos than during prior large-deal cycles, which could drive additional volume if financing conditions remain favorable.
But valuation gaps are still making it harder for funds to exit and provide returns to limited partners—in turn putting pressure on fundraising. While many funds have capital to invest, they remain cautious. We also believe that shifts in PE buyer behavior, including the use of platform roll-up strategies, help explain some of the decline in middle-market deals.
PwC says that competition for quality middle-market assets is likely to pick up, with more large funds turning to the middle market to find opportunities. It suggests that smaller funds will likely need to focus on specific sectors or subsectors to remain competitive, and may seek to differentiate themselves by bringing in operating partners to help strengthen their portfolio companies.
– John Jenkins
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