Resilience in the “sweet spot”: why small- and mid-cap is outperforming the market

While large-cap transactions continue to suffer from volatility in the leveraged finance and syndication markets, the small- and mid-cap segment is proving to be a rock in the surf. A recent Rödl & Partner study for 2025 puts numbers behind what many practitioners are seeing: in Germany, small- and mid-cap companies represent the most attractive segment for private equity investments.

According to the study, 42 per cent of the surveyed investors focus on precisely this size bracket. The reasons are structural. First, financing in the mid-market is often less exposed to global capital-market swings, as it is frequently arranged via bilateral bank relationships or agile private debt funds. Second, this segment offers the greatest leverage for operational value creation.

Unlike large corporates, mid-sized companies still often have substantial headroom to professionalise internal processes, accelerate digitalisation and expand internationally. Returns are generated less through “financial engineering” and more through entrepreneurial development. A further major driver remains demographics: KfW estimates suggest that around 250,000 companies in Germany will be looking for a succession solution by the end of 2026. This sizeable deal flow meets a private equity environment that is more differentiated than ever.

What is particularly interesting is the shift in value drivers. In the past, multiple arbitrage (buying at lower and selling at higher valuation multiples) was a meaningful return contributor. Today – and the study underlines this – the focus is almost entirely on EBITDA growth.

The German “Mittelstand” remains, even by international standards, an asset class with an attractive risk/return profile, provided investors have the network and industrial understanding to identify the “hidden champions” of tomorrow.