GF Data’s latest analysis in collaboration with ACG’s Middle Market Growth examines the dramatic shifts in private equity-backed middle-market M&A since the onset of COVID-19. The data reveals a market that surged to historic highs before confronting a series of economic headwinds that continue to reshape deal activity today.
From Pandemic Lows to Record Highs
The pandemic’s initial impact was severe. Middle-market deal volume plummeted nearly 60 percent between the first and second quarters of 2020, with just 40 transactions completed in Q2. However, the recovery proved swift and powerful. By Q4 2020, deal volume spiked to 141 completed transactions as buyers grew more competitive.
The momentum culminated in 2021, when GF Data tracked 501 completed transactions; a record that still stands. Valuations peaked at 7.6 times trailing 12-month EBITDA for the year, reaching 7.8 times in Q4 2021 and Q1 2022. These inflated valuations became the foundation for seller expectations that would hamper deal flow in subsequent years.
A Transformed Debt Landscape
The middle-market debt environment underwent fundamental repricing. Today’s 90-day trailing SOFR sits at 4.3 percent, with spreads for leveraged loans typically ranging from SOFR plus 550 to 700 basis points for first-lien structures. What once represented a 6 percent cost of debt now approaches 10 percent.
Direct lenders and business development companies now dominate the space as banks remain constrained by regulatory capital requirements. Unitranche deals that previously featured light covenants now include maintenance tests, enhanced reporting, and amortization schedules.
Tariffs Reshape the Market
After showing signs of recovery in 2024 (with 388 completed transactions representing a 31 percent increase over 2023) the market faced new headwinds. Tariff concerns and various macroeconomic factors in Q1 2025 contributed to driving deal volume down nearly 40 percent compared to the prior quarter.
The impact varied by sector. Through the first three quarters of 2025, average valuations on manufacturing deals declined three-tenths of a turn compared to the prior year, while business services deals with less tariff exposure saw valuations increase by the same margin.
Current projections suggest 2025 deal volume could decline more than 24 percent, marking the lowest annual total since 2017. The data is currently being analyzed and the year-end report will be available soon.
Read the full article on Middle Market Growth.