Mid-Year 2025 Middle-Market Financing Outlook: Private Credit’s Surge Amid Volatility
Tariffs Slow a Quick Start to 2025
Although the year began with some momentum as financing activity rose and borrowers eagerly pursued expansion following 2024’s strong finish, that burst proved short-lived. After a busy Q1 that saw LBO loan volumes increase by ~44% year-over-year according to a report by Northleaf Capital, the market hit a complete pause in new issuances by early April, as tariff surprises and geopolitical uncertainty sent investors into a “wait-and-see” mode.
Heading into 2025, post-election sentiment had previously suggested a more constructive environment for dealmaking, and many of us anticipated a material uptick in transaction volume. However, as we close out the first half of the year, persistent macroeconomic and regulatory uncertainties continue to complicate diligence, depress valuations, and elongate deal timelines.
Private Credit Solidifies Its Dominance in Middle-Market Deals
In volatile periods, private credit providers have stepped up. According to a report by Antares Capital, over 70% of mid-market transactions were financed by private credit during recent bouts of market turmoil — and early 2025 was no exception as banks pulled back.
LBOs are still primarily funded by private credit. While the BSL market briefly regained some share via refinancing waves in early 2024, direct lending has continued to dominate leveraged buyout financings well into 2025, according to the same report. Direct lenders remain the leading financing source, and sponsors have overwhelmingly turned to private credit for certainty of execution on acquisitions.
Configure has seen and advised on a large number of these types of transactions, for example, Kingswood Capital Management’s recent strategic investment in InfoTree Global Solutions, Crestview Partners’ acquisition of Smyth Companies, and Sky Peak Capital’s acquisition of TriStar Plastics.
We’ve also seen lower-middle-market deals lean on private lenders. Mega-funds and banks focus on larger deals, which drives tighter spreads at the upper end, but smaller mid-market and add-on transactions rely on a less crowded field of private lenders. This niche sees less competition and thus offers richer pricing — many loans in the sub-$50M deal segment carry yields ~500 bps above risk-free rates, according to a report from Chicago Atlantic Advisers, reflecting the premium available in that space.
Lenders Grow More Selective, Upward Pressure on Spreads
After significant tightening in 2024, private credit spreads hit an inflection point and largely stabilized in early 2025. With rising uncertainty, however, lenders began repricing risk upward — by April, certain new mid-market loans were coming in ~50 bps wider than just weeks prior and all-in borrowing costs began creeping up, according to the Northleaf report.
Additionally, investors and lenders have become increasingly choosy about deals. We’ve seen capital gravitate toward higher-quality borrowers in defensive, non-tariff-exposed industries, while riskier or more cyclical deals face greater scrutiny. Credit is available but on far more stringent terms for weaker credits.
Yields remain elevated for now. With base interest rates expected to hold around ~3.5% in the coming years and spreads under upward pressure, the Northleaf report says private credit yields are historically high. For lenders, this means attractive returns, but for borrowers, it translates into more expensive debt, reinforcing the need to secure favorable terms through prudent structures and strong covenants.
PE Sponsors Remain Optimistic Amid Macro Uncertainty
Despite macroeconomic headwinds, middle-market stakeholders remain cautiously optimistic, exhibiting a surprisingly bullish sentiment. In a late 2024 Antares survey, over 78% of respondents foresaw a “soft landing” economy (0–2% GDP growth) rather than a recession, and a large majority expected healthy revenue and EBITDA growth compared to the prior year.
Private equity sponsors in particular expressed resilience in the survey. 58% of sponsors reported that pressures on their portfolio companies were stable or easing compared to 2023, and almost 80% had high conviction that they would make an acquisition within the next half-year. Nearly half of the sponsors even planned to increase their pace of investment, with intentions to deploy more capital into LBO deals in 2024–25 than they had in the previous year. This indicates that many PE firms are gearing up to capitalize on opportunities as they arise.
Additionally, there is a huge overhang of companies owned by PE firms and members of the baby boomer generation that need to transact. According to a Bain and Co. report from early June, private equity firms are sitting on a record 29,000 companies worth $3.6 trillion, half of which they have owned for five years or more. More than four million Americans will turn 65 over the next 12 months, and this generation is estimated to own more than 40% of all small businesses in the United States. PE firms are feeling increasing pressure to have realizations in their portfolios, and in this deal-dry environment, Configure has also seen sponsors seek to return capital to LPs through alternative means, including dividend recapitalizations, NAV loans, and continuation vehicles.
Antares Capital’s CEO Timothy Lyne noted that this “cautious optimism” among borrowers and sponsors is expected to translate into greater deal origination as the year progresses — suggesting that, even with volatility, sponsors are positioning to capitalize on attractive deals in the back half of the year.
Refinancings and Bolt-On Acquisitions on the Rise
Facing a slow new deal environment, sponsors turned inward to improve existing portfolios, which led to an early 2025 refinancing wave. Notably, many companies refinanced high-cost direct loans with cheaper syndicated loans, taking advantage of a window of lower BSL spreads. According to the Chicago Atlantic report, Q1 2025 saw the second-highest quarterly volume in years of such refi activity as sponsors seized the chance to cut interest expense.
Configure has seen and advised on a large number of these types of refinancings, for example, Team Inc.’s recent refinancingand Palm Beach Capital’s majority purchase of Growve.
In the slower new platform environment, add-ons continue to dominate deal activity, with smaller bolt-on acquisitions emerging as a primary growth strategy. In fact, add-on deals now account for roughly three out of four buyouts in the U.S. PE market (driving over 53% of middle-market deal value), according to a report from BDO. Rather than pursuing large new platforms, firms are busy building out existing portfolio companies with tuck-in acquisitions that are easier to finance under tight market conditions. For example, Configure recently advised on Hidden Harbor’s recapitalization of Lathan Associates Architects in connection with two tuck-in acquisitions for the firm’s architectural and design platform.
Bolt-ons and refinancings enable PE sponsors to deploy capital and generate value without betting on large new deals during uncertain times. These smaller transactions leverage known quantities, existing businesses, and can often be funded through incremental debt from current lenders or additional equity, thereby avoiding the need for new and potentially risky leverage. This tactical focus is buying time — and boosting portfolio EBITDA — until the broader M&A climate improves.
Positioning for H2 2025: Outlook and Strategy
Market watchers are cautiously optimistic that the pause in deal activity will be temporary. Tariff and geopolitical headwinds have sidelined some M&A to late 2025, but record levels of PE dry powder are waiting in the wings — a potential tailwind for a surge of deals once confidence returns. If inflation and policy uncertainties ease, a meaningful resumption of deal flow in H2 2025 is on the horizon.
Additionally, sponsors should expect private credit to continue its outsized role when the market rebounds. History shows that when banks retrench, direct lenders step up. In prior volatile periods, private credit has funded the majority of middle-market deals thanks to its flexibility and certainty. Cultivating strong relationships with cash-rich private lenders will be crucial for sponsors seeking quick, reliable financing in the next wave of M&A.
Despite the optimism, the financing environment is likely to remain selective. Sponsors would be wise to bring only high-quality deals to market in the coming months, demonstrating resilient cash flows, reasonable leverage, and clear mitigation plans for macro risks. Well-prepared, conservatively structured deals are far more likely to secure funding (and on better terms) in a cautious climate. By staying agile, focusing on bolt-on value creation, and locking in flexible capital structures now, PE firms can confidently navigate the second half of 2025 and beyond as conditions improve.
About Configure Partners
Configure Partners is a credit-oriented investment bank specializing in debt placement. The firm provides the highest level of client service and execution to middle-market private equity sponsors in acquisition finance, refinancing, and dividend recapitalization transactions. Configure is one of the largest firms dedicated to debt advisory. We’ve developed our processes and systems to ensure execution across all types of financing transactions. Unlike other debt placement groups, we don’t treat debt advisory as a secondary service offering to M&A — debt placement is our entire business.
Importantly, we consider ourselves an extension of our clients in the market, and we treat lenders accordingly. The cumulative effect of this approach is particularly powerful in a more difficult financing environment where debt capital is less “abundant.” The results of the Configure methodology speak for themselves, with over 80% of our revenue coming from a repeat source of business.
If the above article has sparked a question or thought concerning hiring an advisor for financing, please feel free to reach out to any of our Configure team members or visit our website at https://configurepartners.com/.
About Mark Birkett
Mark joined Configure in 2025 as our first banker in Chicago, bringing over two decades of experience supporting private equity firms and middle-market borrowers across a range of debt products, including those supporting acquisitions, growth, recapitalizations, and refinancings.
During his career, Mark has underwritten and advised clients in structuring and executing more than $6 billion of financings comprising senior debt, subordinated debt, structured capital, and non-control equity.
Before joining Configure, Mark was a Senior Managing Director at Hilco Corporate Finance. Prior to joining Hilco Corporate Finance, Mark was a Managing Director in the Leveraged Finance Group at William Blair. Previously, he served as Partner and Managing Director at Livingstone Partners, a lower middle-market investment bank. He was also an Underwriter at GE Antares Capital.
Mark earned his MBA from the Ross School of Business at the University of Michigan and his B.S.B.A. in Finance from Villanova University.