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            Portfolio Insights

            A big role for small and middle-market private equity investments

            TJ
            Tyler Jayroe

            Managing Director

            Published: 20/08/2026
            A big role for small and middle-market private equity investments
            Structural advantages and current market conditions may help small and mid-size companies make a big impact in private equity markets.

            In brief

            • Small and mid-market buyouts present a broad opportunity set, lower entry and leverage multiples, and meaningful potential for value creation through operational improvements and add-on acquisitions.
            • Current market conditions may favor smaller companies, which often benefit from multiple exit pathways beyond IPOs, including sales to larger private equity firms or strategic acquirers.
            • We believe these dynamics may result in enhanced returns for long-term investors who are equipped to capitalize on the potential outperformance that small and middle-market buyouts offer.

            Structural advantages in small and middle-market opportunities

            The smaller end of the U.S. buyout market—companies with annual revenues of $10 million to $300 million—has several structural advantages.

            • Bigger opportunity set: Roughly 99,000 companies— 95% of all privately held companies—are small and middle-market, which is almost 20 times larger than the opportunity set available to large cap Private Equity (PE) firms (Exhibit 1).
            • Lower purchase multiples: This universe of small companies is large and fragmented, making it the least efficient segment of the buyout market and resulting in lower purchase multiples relative to the heavily intermediated and smaller pool of large cap opportunities. Since 2010, the median acquisition multiple for companies valued at less than $1 billion has been 25% lower than companies valued between $1 billion and $3 billion, which in turn has been 18% lower than companies valued at more than $3 billion (Exhibit 2a).
            • Less leverage: Lower purchase multiples also mean that small and middle-market buyouts require less leverage to achieve their target returns. On average, companies that are valued under $1 billion have 34% less acquisition leverage than larger companies. This reduces risk and interest payments, freeing up cash to invest back into the business or return to shareholders (Exhibit 2b).
            • Operating improvement opportunities: Small and middle-market firms are seeking to create value through growth and operational improvements, rather than relying on financial engineering to produce returns. These companies seek to raise their professional standards. They can benefit from the resources that high-quality PE firms offer: access to well-established networks of experienced managers, operating advisors, and board members with specific sector or functional expertise can meaningfully improve technology, marketing and distribution functions. Layering in strategic add-on acquisitions can add scale, diversification, geographic reach, and a broader set of products or services.

            Current market conditions could favor smaller deals

            In addition to their structural advantages, small and mid-sized investments may be comparatively well positioned in the current private equity environment. Higher-for-longer interest rates and valuation pressures have extended investment hold periods, with the median company hold time increasing from five years in 2021 to six years in 2025. Although exit activity improved modestly in 2025, with the global value of private equity exits increasing 33% from 2024, distributions remain constrained. The overall distribution rate, measured as annual aggregate distributions relative to net asset values, declined from a high-water mark of 34% in 2021 to 13% in 2025. (Exhibit 3)

            Large buyout funds tend to rely more heavily on IPOs as an exit route, as their portfolio companies may be too large for many strategic investors or financial sponsors to acquire. Although the IPO market showed signs of improvement in 2025, with IPO exit value rising 42% above the trailing five-year average, rapid technological change and market volatility remain meaningful headwinds.

            In contrast, over 90% of exits in the small and middle-market have historically been sales to strategic buyers or financial sponsors. Strategic acquirers are typically drawn to these companies as they are large enough to make an impact, but not too large to digest or clear antitrust scrutiny. These buyers are also typically looking to add specific capabilities or enter new markets, which are characteristics that are less dictated by the macro environment.

            Large financial sponsors also remain longstanding buyers of small and middle-market PE-owned companies, both as new platform investments and as add-on acquisitions for existing portfolio companies. Strong fundraising at the upper end of the market has further supported sponsor-to-sponsor activity, with funds exceeding $5 billion in assets accounting for over 49% of capital raised in 2025. As a result, sponsor acquisitions represented more than 35% of exits in 2025.

            Companies currently owned by small and middle-market general partners (GPs) are a major source of potential investments for large GPs as these businesses have been thoughtfully constructed by their current owners to fit the characteristics that large cap buyers value, such as scale and diversification, along with high-quality systems, processes and management teams.

            Historically resilient returns for investors

            The returns on small and mid-cap private equity investments have been compelling for investors with a long time horizon. The IRR (Internal Rate of Return) of top quartile buyout funds less than $5 billion in size has been consistently higher than their larger peers, exceeding larger funds by about 5%. (Exhibit 4)

            However, there is a wider dispersion of returns across a larger group of managers at the smaller end of the market, highlighting the importance of having sufficient resources and a well-established process to make prudent manager and asset selection decisions. (Exhibit 5)

            Manager selection will be especially important for individual investors, who will have an increasing choice of investments as alternative asset managers offer new products targeted to them, such as evergreen private market funds.

            J.P. Morgan Asset Management’s Private Equity Group (PEG) is led by a seasoned team of senior portfolio managers that have worked together for an average of 24 years, during which time we have developed the systems, processes, and pattern recognition to evaluate opportunities across a broad cross-section of sectors, strategies, and geographies generated from an expansive network of over 260 GP relationships.

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            All investments contain risk and may lose value. This advertisement has been prepared and issued by JPMorgan Asset Management (Australia) Limited (ABN 55 143 832 080) (AFSL No. 376919) being the investment manager of the fund. It is for general information only, without taking into account your objectives, financial situation or needs and does not constitute personal financial advice. Before making any decision, it is important for investors to consider the appropriateness of the information and seek appropriate legal, tax, and other professional advice. For more detailed information relating to the risks of the Fund, the type of customer (target market) it has been designed for and any distribution conditions please refer to the relevant Product Disclosure Statement and Target Market Determination which have been issued by Perpetual Trust Services Limited, ABN 48 000 142 049, AFSL 236648, as the responsible entity of the fund available on https://am.jpmorgan.com/au.