Winston Taylor, in partnership with Mergermarket, released its 2026 U.S. & European Middle-Market Investment report, examining trends in middle-market private equity dealmaking, fundraising and general partner (GP)-limited partner (LP) alignment over the next 24 months.
Drawing on a Q2/26 survey of 100 senior executives from U.S. and European middle-market GPs and LPs, the report finds that the middle market is gaining momentum as firms operate in a more disciplined environment shaped by evolving investor expectations.
U.S. middle-market deal value reached $421.1 billion in 2025, up 14.7% year over year, while European deal value remained above pre-pandemic levels at $286.8 billion.
Key findings include:
- LPs to increase allocations to the middle market: 72% of LPs expect to increase allocations to U.S. middle-market funds over the next two years, compared to 48% who say the same for large and mega funds.
- Dealmaking activity is expected to increase: 87% percent of respondents expect the total value of U.S. middle-market buyout activity to rise over the next two years, including 36% who anticipate a significant increase.
- Pressure to return capital reshapes exit strategies: 72% of LPs say distributions to paid-in capital (DPI) are among the most difficult issues in GP–LP negotiations. However, 100% of GPs surveyed have a strategy to improve their DPI, with secondary buyouts (84%) and continuation vehicle (CV) or GP-led secondaries (58%) among the most widely used liquidity tools.
- AI influences investment strategy: 79% percent of respondents say artificial intelligence (AI) will be a top driver of technology investment over the next three years. Firms are also balancing increased exposure to AI-driven opportunities with portfolio diversification.
- Geopolitical uncertainty remains a key constraint: 66% of respondents expect geopolitical uncertainty to be among the top challenges for firms pursuing middle-market deals over the next two years.
“The next phase of middle-market private equity will be defined by how effectively GPs and LPs align on the one simple principle: turning disciplined value creation into realized liquidity for LPs,” Eva Davis, managing partner for external affairs at Winston Taylor, said.
“The evolving landscape and headwinds demand operational excellence and disciplined investing. This will truly set successful sponsors apart over the next five years,” Justin Levy, regional head of mergers and acquisitions / private equity at Winston Taylor, said.
Looking ahead, the report indicates that middle-market private equity will continue to evolve as firms face uncertain and complex dealmaking conditions. Adaptability and innovation will position sponsors to capture opportunities in a changing market environment.
