Middle-market buyout firms are pouring capital into smaller transactions, according to new data from PitchBook. The upshot is lower entry multiples, but harder work.
In the second quarter, sponsors inked 413 US PE deals valued between $25 million and $100 million, totaling $16 billion in deal value, according to data from PitchBook’s latest US PE Middle Market Report. This represents quarter-over-quarter increases of 56.4% in deal count and 70.6% in deal value.
That segment was the middle market’s sole bright spot in Q2. Dealmaking in every other size bucket either contracted or stalled. Only eight transactions in the upper middle market—those valued between $500 million and $1 billion—were struck in Q2, down about 64% from the previous quarter. The total value of those deals dropped 64% to $5.7 billion.
Shrinking transaction sizes serve as another sign of capital shifting toward the lower end. The median middle-market deal value fell to $151.9 million in the first half from $179 million in 2025.
A shift in playbook
Rather than hunting for a large, already integrated platform and using it to roll up smaller peers, sponsors are increasingly acquiring small, founder- or family-owned businesses as the platform company and the add-on, advisers say.
The strategy has been gaining traction in sectors such as industrial services, insurance brokerage and residential services, fragmented industries made up of small businesses that stand to gain from centralizing back office functions, according to Paul Mahoney, a partner at law firm Troutman Pepper Locke.
“The initial acquisition is smaller in transaction value than usual, but they have a plan to grow the company through acquisitions,” he said.
A driver of this is the ongoing exit bottleneck. Fewer sponsors are offloading their portfolio companies to the market now, leaving buyers with a shrinking pool of scaled businesses to choose from, and the few sponsor-backed assets that do surface are often commanding high valuations.
These smaller businesses typically trade at EBITDA multiples of between four and eight times, relatively lower than what large companies command, said Christopher Sheaffer, the global vice chair of Reed Smith’s PE group.
The tradeoff is that integrating them often demands more hands-on work. For funds willing and able to drive genuine operational improvements, lower entry multiples and EBITDA arbitrage create opportunities to pocket strong returns, Sheaffer said.
In Q1 2026, the median entry multiple for companies with enterprise values between $500 million and $1 billion was 13.2x EV/EBITDA, up from 12.1x in 2025, according to PitchBook data. By contrast, the median valuations for companies in the $25 million to $100 million size range stood at 8.5x in Q1, down from 8.8x in the previous year.
