Private Equity's Shifting Focus: What Middle Market Companies Need to Know

The private equity landscape is undergoing a significant transformation in 2025, driven by evolving economic conditions, changing limited partner expectations, and shifts in competitive dynamics. For middle market companies considering capital partnerships or potential exits, understanding these changes is essential for strategic positioning.

The New PE Playbook

The traditional private equity model of financial engineering and moderate operational improvements is rapidly giving way to a more nuanced approach focused on genuine value creation. Three key shifts define this evolution:

1. Sector Specialization Intensifies: Generalist PE firms are becoming increasingly rare in the middle market. Today's most successful firms bring deep industry expertise, established playbooks for specific subsectors, and networks of operating executives with relevant experience. This specialization allows them to identify value creation opportunities that generalists might miss and implement improvements more quickly post-acquisition.

2. Longer Hold Periods Become Normalized: The traditional 3-5 year hold period is extending, with many firms now planning for 6-8 year investments from the outset. This lengthened timeline allows for more substantial operational transformations, particularly in sectors requiring significant technology integration or business model evolution.

3. Value Creation Teams Take Center Stage: PE firms are investing heavily in operating partners and specialized value creation teams with specific functional expertise in areas like digital transformation, go-to-market optimization, and supply chain enhancement. These resources represent a significant shift from the more financially-focused approaches that dominated previous decades.

What This Means for Middle Market Companies

These shifts create both opportunities and challenges for middle market business owners and executives:

For Companies Seeking Growth Capital:

The increasing specialization among PE firms means finding the right capital partner has never been more important – or potentially more rewarding. The best matches now go beyond valuation to consider alignment in vision, industry expertise, and available resources.

Strategic questions to ask potential PE partners include:

• What specific value creation initiatives have you implemented in companies similar to ours?

• Which operating partners would be involved with our business, and what is their relevant experience?

• How does your firm's investment timeline align with the growth trajectory of our business?

• What technology investments or capabilities can you bring to accelerate our digital transformation?

For Companies Considering an Exit:

PE buyers are conducting increasingly sophisticated due diligence, with particular focus on:

• Market Position Resilience: How defensible is your competitive advantage, and how has it evolved through recent economic challenges?

• Technology Integration: Has your business successfully incorporated digital tools to enhance efficiency, customer experience, or data analytics capabilities?

• Management Depth: Beyond the founding team or current leadership, how strong is the next level of management?

• Growth Runway: What organic growth opportunities remain, and how well-positioned is the company to capture them?

Preparing for these more rigorous evaluations requires thorough pre-transaction planning, often beginning 12-24 months before contemplating a formal process.

Current Areas of PE Focus

While every firm has its own investment thesis, several sectors are attracting particular interest from PE investors in 2025:

1. Healthcare Technology and Services: Companies that improve healthcare delivery efficiency, particularly those with recurring revenue models and demonstrable ROI for providers or payers.

2. Business Process Automation: Middle market companies that help other businesses automate workflows, reduce manual processes, or implement AI-enhanced operational improvements.

3. Supply Chain Resilience Solutions: Businesses that help companies navigate continuing global supply chain complexities through technology, nearshoring assistance, or inventory optimization.

4. Sustainability Enablers: Companies providing products or services that help other businesses meet sustainability objectives, particularly those with measurable impact metrics and regulatory tailwinds.

5. Essential Services with Technological Enhancement: Traditional service businesses that have successfully integrated technology to improve delivery, customer experience, or operational efficiency.

Case Study: Transforming Manufacturing Operations

One recent Summit client in the precision manufacturing space provides an instructive example of successful PE partnership. The company had strong technical capabilities and customer relationships but lacked the capital and expertise to implement advanced production technologies.

After exploring various capital options, they partnered with a manufacturing-focused PE firm that:

• Invested $12M in new equipment and automation

• Implemented advanced ERP and production scheduling systems

• Added three experienced industry executives to the board

• Facilitated two strategic acquisitions that expanded capabilities and customer reach

The results over a five-year partnership included:

• 212% increase in revenue

• 285% increase in EBITDA

• Significant expansion of both customer base and geographic reach

• Successful exit at a valuation 3.4x higher than the initial investment

Preparing for PE Engagement

Whether seeking growth capital or planning an exit, middle market companies can take several steps to position themselves effectively:

1. Invest in Financial Infrastructure: Clean, detailed financial reporting with clear KPIs and metrics tracking is foundational to PE interest.

2. Document Strategic Initiatives: Create clear roadmaps for growth opportunities, with defined metrics, resource requirements, and expected outcomes.

3. Strengthen Management Depth: PE firms value companies where success doesn't depend entirely on founders or a few key executives.

4. Address Potential Red Flags Proactively: Identify and resolve issues related to customer concentration, key person dependencies, or regulatory concerns.

5. Develop a Clear Equity Story: Articulate what makes your company valuable and how additional capital or resources could accelerate growth.

The Path Forward

The evolving private equity landscape creates significant opportunities for well-positioned middle market companies. By understanding these shifts and preparing strategically, business owners and executives can find the right partners to help them achieve their growth and liquidity objectives.

At Summit Capital Partners, we help clients navigate these complex dynamics, leveraging our deep understanding of PE priorities and our relationships across the investment community. The key is approaching potential capital partnerships with clarity about your objectives and a thorough understanding of what different investors can bring beyond their financial resources.