Private equity dealmaking remains constrained, but the middle market is proving more active than headline transaction volumes might suggest. Beneath the broader slowdown, the composition of activity is changing: smaller transactions are taking a greater share of closed deals, sector performance is diverging, diligence is becoming more demanding, and financing structures continue to require significant equity commitments from sponsors.

Taken together, the data points to a market that is not necessarily short on opportunities, but one in which those opportunities are becoming harder to identify and more difficult to underwrite. For private equity firms, the challenge is increasingly less about waiting for transaction volumes to return and more about understanding where activity is already moving.

The clearest change is visible in the size of transactions reaching close. Datasite’s aggregated transaction data shows that deals valued between $10 million and $100 million represented 43% of closed transactions in Q1 2025, up from 33% in Q1 2024. Transactions between $100 million and $500 million also increased their share, rising from 26% to 36%. Meanwhile, the largest end of the market moved sharply in the opposite direction: deals valued above $1 billion fell from 23% of closes to just 6%.

The shift helps explain why aggregate M&A figures can paint an incomplete picture of the opportunity available to private equity. Large transactions carry disproportionate weight in total deal value, so a decline at the upper end can make the overall market appear significantly weaker even while smaller transactions continue to move. For sponsors, that places greater importance on the middle and lower-middle market, where financing requirements can be more manageable and fragmented industries continue to create opportunities for platform investments and add-on acquisitions.

Yet greater activity at smaller transaction sizes does not mean execution has become easier. Datasite’s data on U.S. transactions between $10 million and $1 billion shows that median diligence periods increased by 11 days year over year, while deals placed on hold increased by eight percentage points. The sector-level picture is even more uneven. TMT saw holds increase by 17 percentage points, despite only a four-day increase in diligence, while consumer deals experienced shorter diligence periods but a 15-point increase in holds. Energy stood out in the opposite direction, with diligence extending by 57 days even as holds declined.

Rather than pointing to a uniformly frozen market, the data suggests buyers are becoming more selective about which processes deserve additional time and capital. Longer diligence can reflect greater scrutiny around earnings quality, financing assumptions and downside scenarios, while the increase in holds suggests sponsors are increasingly willing to pause when conviction is insufficient. Healthcare provides a useful contrast: preparation and diligence times both declined year over year and closes improved slightly, underscoring how different the execution environment can look depending on the sector.

The financing environment adds another layer to that selectivity. GF Data shows that equity represented 47.5% of transaction financing in 2025 YTD, compared with 42.4% from senior debt and 10% from subordinated debt. That is below equity’s 52% peak in 2023, but still leaves sponsors funding nearly half of transaction value with equity.

The gradual recovery in senior debt is encouraging — its contribution has risen from 38.7% in 2023 to 42.4% in 2025 YTD — but the capital structure remains meaningfully different from an environment in which leverage can do much of the work in generating returns. With substantial equity still required at entry, sponsors have greater reason to maintain purchase-price discipline and place more weight on operational value creation after close.

That dynamic can reinforce the bifurcation already visible in transaction activity. High-quality assets with resilient earnings and clear growth paths can still attract aggressive competition, while businesses requiring more complex underwriting may struggle to clear investment committees. For sponsors willing to do the additional work, however, those less straightforward situations may also be where pricing becomes more attractive.

The opportunity set is also shifting by sector. Datasite’s U.S. deal-start data shows real estate activity up 35%, TMT up 23% and consumer up 17%, while healthcare increased 9% and industrials 3%. Energy was the outlier, with deal starts declining 11%.

These differences matter because they suggest the next phase of the market is unlikely to look like a broad-based recovery in which transaction activity rises evenly across industries. Instead, deal flow appears to be reopening selectively, creating pockets of activity that can coexist with difficult conditions elsewhere. The firms best positioned to capitalize may therefore be those able to distinguish between sectors that are genuinely reopening and those where apparent opportunities remain difficult to finance or close.

For private equity, the emerging picture is less one of a market waiting to restart and more one of a market being repriced and redistributed. Smaller transactions are accounting for a larger share of closes, leverage is recovering but equity remains a substantial component of financing, and both deal timelines and outcomes vary materially across sectors.

That dispersion changes what it means to be selective. In a stronger market, selectivity can simply mean competing for the highest-quality assets. In the current environment, it increasingly means identifying where the combination of valuation, financing, sector momentum and execution risk creates an attractive risk-adjusted opportunity.

That may be the more important takeaway from the middle-market data. The opportunity for sponsors is not necessarily to increase deployment indiscriminately as conditions improve, nor to wait for the market to resemble the previous cycle. It is to recognize that parts of the market are already moving — and that the dislocation between those pockets of activity may create opportunities that broader deal statistics fail to capture.

For investors still measuring the market primarily by aggregate transaction volumes, that may be exactly what private equity is missing out on.

Datasite and GF Data’s What’s Private Equity Missing Out On? examines the changing middle-market deal environment, including transaction sizes, financing structures, deal timelines and sector-level activity.

[Download the full report →]