Despite macroeconomic uncertainty putting capital markets on a temporary pause, U.S. middle market private equity sponsors remain cautiously optimistic on the outlook for dealmaking, exits and returns, according to a recent survey from Churchill Asset Management. The survey polled 164 senior leaders from Churchill’s private equity relationships to gauge sentiment in today’s market environment and how these perspectives are influencing investment decisions.
Over half of private equity sponsor respondents anticipate normalized M&A activity in the first half of 2026, while a quarter expect normalization as early as the second half of 2025. In line with this outlook, when asked how many exits they anticipate over the next 12 months, 42% of respondents noted two, with over one third (34%) eyeing three or more. Expectations for returns are similarly strong, with more than 90% projecting 2025 base-case returns to match or exceed those in 2024.
“Middle market private equity firms remain confident in their ability to sustain strong returns and attractive deal flow,” Randy Schwimmer, vice chairman, investor solutions of Churchill, said. “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. Just as important, the power of relationships has never been more apparent. In our survey, sponsors chose “relationships” and “speed and certainty” as the top priorities when selecting a financing partner – and we’re honored to be a valued, trusted partner to so many of them.”
Usage of Senior Lending, Co-Investments, Junior Capital Solutions Remain Strong, Continuation Vehicles Cements Its Viability
Over the past two years, 95% of respondents employed a senior lending strategy for portfolio companies, followed by equity co-investment (85%) and junior capital (60%). While most private equity leaders plan to maintain their current approach amid today’s investment environment, interest in senior lending and continuation vehicles (CVs) remains particularly strong. 36% of sponsors reported an increased appetite for senior lending, followed by 33% for CVs and 30% for equity co-investments.
CVs are emerging as a strategic mainstay for sponsors. Among firms that utilized CVs over the last two years, 88% cited retaining high-value “trophy” assets and providing liquidity to limited partners as their primary motivations. Notably, more than two-thirds of these transactions have involved single-asset deals, underscoring the targeted nature of this approach.
Importantly, the adoption the strategy appears resilient. 79% of respondents stated that even if the M&A environment improves and interest rates decline, their likelihood of pursuing a CV would either remain unchanged or increase. This finding directly challenges the perception that CVs are mainly used in times of market dislocation — underscoring their broader acceptance as a flexible, long-term portfolio management tool.
“These responses highlight the continuous innovation in today’s evolving market landscape and the adoption of strategies that enhance liquidity and asset management efficiency,” Schwimmer said.
GPs Choose Business Services, Utilities, Financial Services and Tech Sectors
Tariff pressures and political uncertainty are prompting a strategic allocation shift among GPs. They expect to increase investments to sectors perceived as more resilient, like business services (+42%), followed by utilities/environmental (+19%) and financial services (+17%). Conversely, there is a noticeable retreat from consumer goods (-17%) and automotives (-12%), as sponsors deem these sectors more vulnerable in the current economic climate.
