Small and mid-market buyouts: 10 structural and cyclical tailwinds – and how to invest for success
Small and mid-market buyouts share some distinct characteristics that enable them to benefit from both structural and cyclical tailwinds, offering investors not just a resilient shelter from uncertainty but a compelling platform for long-term outperformance.
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Key takeaways:
Key tailwinds for small and mid-market buyouts include:
- Proprietary sourcing advantage unlocks opportunities to access untapped growth.
- Vast but undercapitalised target universe allows for high selectivity.
- Valuation discount compared to large cap buyouts and small-cap indices creates attractive entry points.
- Stable deal flow dynamics amid broader buyout market disruption.
- Ability to optimise exposure through co-investments and continuation investments.
- Value creation driven by business transformation, not leverage, reducing volatility.
- Focus on local champions and domestic revenues buffers against trade shocks.
- Greater exit optionality decreases dependency on IPOs.
- Proven resilience during past down-markets.
- Widening performance advantage over recent years.
Schroders Capital has long extolled the virtues of investing in the private equity small and mid-market – and of course, you would expect us to do so, given this has been our key area of focus throughout our near-three decades of investing.
Institutional investors around the world now increasingly share this conviction. Schroders’ Global Investor Insights Survey 2025 found that private equity is one of the two most favoured asset classes for return opportunities in today’s uncertain macroeconomic environment. Within that, small and mid-market buyouts are the preferred strategy for those who are targeting new investments to the asset class.
In truth, this market has always been the engine room of private equity activity, accounting for more than nine in 10 global private equity funds and managers, and so the vast majority of activity. But this breadth also inevitably means that outcomes are uneven, with some of the best overall performance across the private equity universe – but also wider underlying return dispersion.
Investors therefore need to be discerning and disciplined to maximise the chances of long-term success.
In this paper we share 10 structural and cyclical factors, with a weighting to long-term structural factors, that are providing tailwinds to small and mid-market buyouts, both in the current market and longer-term. We then conclude with our views on how investors should approach allocations and portfolio construction to harness the potential of this dynamic segment to enhance portfolio resilience and long-term return potential.
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