Conference Presentation, Panel
Middle Market Private Equity: The Smart Money's Next Move | Global Conference 2025
Milken InstituteJohn L. Bowman, R. David Andrews, Dean Mihas, Molly Murphy, Scott Spielvogel, Andrew Weinberg
- The private capital industry is projected to grow and remain a permanent fixture, with dry powder currently representing approximately half of fundraising activity, while the market cycle is characterized as extraordinary and elongated with an anticipated three-year delay in M&A supply before quality companies become available for sale.
- Strategic evolution over the next few years will shift the industry from leveraged finance toward business transformation, with the "haves and have-nots" divide determined by the ability to innovate business models and deploy AI rather than capital availability, as firms failing to build near-term AI solutions risk being left behind.
- In approximately ten years, AI is expected to act as a "great knowledge equalizer" by potentially matching capital sources directly via blockchain smart contracts and removing data advantages, while also rewriting the relationship between LPs and GPs and prompting LPs to include AI capability in due diligence checklists within a few years.
- Specific operational preparations include GTCR adding three AI-dedicated personnel to its operations group within two months, OneRock leveraging industry experts to assess managers in carve-out situations to reduce friction, and a general industry shift toward recruiting multidisciplinary, lateral systems thinkers over historically homogeneous talent.
- Investment approaches will focus on deploying capital into long-term, high-quality assets with healthy balance sheets regardless of economic uncertainty, while addressing the "dark ages" technology gap in the middle market to achieve 10x returns on capital and time.
- Geographic and trade dynamics favor companies manufacturing or providing services locally in North America and Europe to gain a commercial advantage from deglobalization and shortened supply chains, with GTCR expecting immunity to first-level tariffs and FX changes due to its US-focused portfolio.
- Exit strategies and market conditions anticipate acceleration in M&A activity as private capital is deployed, supported by willing buyers and debt market spreads potentially only 50 to 100 basis points higher than levels seen three or four months ago, with creativity becoming critical for fruitful negotiations.
- Value creation models will increasingly rely on increasing business cash flows by 50% to 100% under ownership to generate value independent of exit multiples, while the industry evolves to build resilience against potential recessions, stagflation, or inflation.
- Long-term market understanding of valuation dislocations seen in the late 2000s and early 2021 is expected to take a few more years to fully crystallize, alongside AI agents potentially replacing current analyst functions and reducing organizational headcount in the finance sector.