Private equity mid-market: first signs of recovery, but challenges remain

After two challenging years, the German mid-market private equity segment is showing signs of a tentative upturn. The most recent FINANCE Mid-market Private Equity Monitor, compiled by FINANCE magazine in cooperation with Deutsche Beteiligungs AG (DBAG), indicates a slight pick-up in deal flow, with private equity investors focusing more and more on new platform investments. However, there are still a significant number of challenges that are affecting growth.

Tentative rebound in the deal flow
The deal flow indicator improved slightly to 5.0 points (on a scale from 1 to 10), marginally above the 4.9-point reading in the previous survey but still short of the long-term average of 5.3 points. Even though the macroeconomic environment remains demanding, attractive investment opportunities are still available – especially in the German market where valuations look particularly promising relative to the potential upside.

Investor opinion divided on the deal environment
While 41 per cent of investors surveyed saw the deal environment for the first half of 2025 as being “neutral”, 32 per cent of respondents were optimistic, with 5 per cent even expecting a “very positive” environment. By contrast, 28 per cent of respondents predict a negative development.

Rising competitive pressure among financial investors is a sign of growing activity. The relevant indicator rose to 7.4 points (on a scale from 1 to 10), exceeding the values seen in recent surveys.

Creating value through add-ons and efficiency enhancement programmes
Investors are relying more and more on “buy and build” strategies and efficiency enhancement programmes. As many as 73 per cent of respondents consider these two approaches to be the most effective way to add value at present. Strategic add-on acquisitions allow portfolio companies to expand their market position while optimising operations helps to boost profitability and competitiveness.

Focus on asset-light sectors
Non-cyclical, asset-light business models are particularly popular in the current market environment. Sectors preferred by respondents are software and business services (55 per cent each), followed by industrial/IndustryTech (50 per cent) and healthcare & pharmaceuticals (32 per cent). At just 5 per cent, the automotive sector only plays a minor role.

Difficult exits and muted recruitment
While many investors are pursuing new deals, exit activity remains subdued. Not a single respondent indicated that they were actively working on disposals at present – a sure sign that market uncertainty is hampering potential sales. At the same time, private equity firms have no plans to significantly expand their teams: Here, 41 per cent intend to keep their team size unchanged, while 27 per cent even expect to downsize their investment team a little.

Outlook: Opportunities and risks
Even though rising transaction activity suggests that the market is stabilising, risks still exist in the form of political uncertainty, geopolitical tensions and demanding financing conditions, all of which continue to pose challenges for private equity. In addition, PE firms are facing growing competition from family offices and strategic investors, especially from the US and the Germany, Austria and Switzerland region.

The coming months will show whether the positive trend will prevail or whether the market will be slowed down by the constant uncertainty. One thing is certain: private equity needs to be flexible to make the most of the opportunities that present themselves.

Click here to find the complete FINANCE Midmarket Private Equity Monitor (on German only; paywall): FINANCE Midmarket-Private-Equity-Monitor - FINANCE