Mid-Market PE Firms Stay Cautiously Upbeat on Deal Flow, Returns and CVs — Evening Brief – 07.10.25  

Despite macroeconomic crosswinds, including elevated rates, political uncertainty, and tariff risks, U.S. middle market private equity managers remain cautiously optimistic about the outlook for dealmaking, exit activity, and returns, according to Churchill Asset Management’s latest Middle Market Private Equity Outlook, based on a survey of 164 senior leaders across its private equity relationships. 

More than half of respondents said they expect M&A activity to normalize by the first half of 2026, with a surprising one in four predicting that deal flow could rebound as early as the back half of this year. When asked about exits, 42% of respondents see themselves closing at least two exits over the next 12 months, and more than a third expect three or more. That optimism extends to performance: over 90% of firms project 2025 base-case returns will meet or surpass those seen in 2024, underscoring a sense of resilience in the face of macro uncertainty. 

Churchill’s Vice Chair of Investor Solutions Randy Schwimmer emphasized that enduring relationships and certainty of execution remain critical differentiators as the market works through the current cycle. “What we’re seeing in today’s environment is a flight to quality – deals for well performing assets in non-cyclical sectors like business and financial services are still getting completed,” Schwimmer noted, pointing to  “relationships” and “speed and certainty” as top factors when firms select financing partners. 

From a market structure perspective, the survey reinforces that continuation vehicles (CVs) are not just a crisis-era solution but an embedded tool for middle market GPs. Nearly 36% of sponsors report increased appetite for senior lending strategies, while a notable 33% are ramping up their use of CVs. Among sponsors that have employed CVs in the past two years, 88% cited the ability to retain high-quality “trophy” assets and provide LP liquidity as top motivators. Importantly, even if deal markets thaw and rates come down, 79% said they’d still lean on CVs as a core strategy, indicating this tool is here to stay. 

The survey also highlights a clear thematic tilt in allocation: GPs are rotating capital into more defensive sectors such as business services (42%), utilities/environmental (19%), and financial services (17%), while steering away from consumer goods (-17%) and automotives (-12%), sectors they see as more exposed to geopolitical friction and tariff risks. 

For the broader private credit and secondaries market, this persistence of CVs and senior lending demand means LPs will continue to see opportunities for co-investment alongside trusted sponsors. At the same time, managers with strong sourcing networks and sector specialization stand to benefit as competition tightens for fewer but higher-quality deals. 

Bottom line: even amid macro ambiguity, Churchill’s findings suggest that middle market PE remains a fertile ground for disciplined capital, especially for investors that can leverage deep GP relationships, flexible structures like CVs, and sector plays that hedge against the next big geopolitical or economic twist.