The private equity landscape is evolving rapidly, driven by shifting market dynamics, policy changes, and emerging investment opportunities. Factors like increased deal flow, advancements in AI and technology, and a renewed focus on sustainability are expected to shape investment strategies and competitive positioning.
Cyrus Nikou, Founder and Managing Partner of Atar Capital, shares his perspective on the key trends that will define the industry in the coming year.
From the rise in corporate carve-outs to the evolving role of energy and renewables, Nikou offers a look at what’s ahead for private equity and how firms can adapt to an increasingly complex market.
Our conversation with Cyrus Nikou is shared below.
Crowdfund Insider: What factors are driving the expected rise in deal flow and M&A activity in the lower-middle market?
Cyrus Nikou: Debt markets are expected to remain favorable, with steady to slightly lower interest rates providing more leverage and liquidity for deals.
That, coupled with an increased appetite for transactions, particularly in the lower middle market, is creating a favorable investment climate. Investors are understandably eager to roll up their sleeves and get to work with the companies they’re investing in, particularly after a few slower quarters, and targeted investments in high-growth sectors will play a key role in accelerating deal activity.
Record levels of available capital are also pushing firms to seek new investment opportunities, particularly in the lower-middle market. And business owners, particularly baby boomers, are looking for exit strategies, creating more acquisition opportunities.
An estimated 30 million Americans will hit retirement age by 2030, and the business owners among them will naturally seek guidance on how best to ensure their companies live on without them. Firms that have proven track records in guiding these companies are well-positioned for dealmaking at this time.
Crowdfund Insider: How are corporate carve-outs shaping up to be a major opportunity for private equity, particularly in the lower-middle market?
Cyrus Nikou: Large corporations are refocusing on core operations and divesting non-core assets, creating acquisition opportunities for firms. When these companies spin off non-essential divisions, private equity can acquire the carve-outs at attractive valuations. This benefits both the original corporations, which can better focus on their core business rather than doing many things only reasonably well, as well as firms that are eager to support specialized areas of production and operation.
Atar Capital specializes in turning underperforming divisions into high-performing businesses through strategic growth initiatives organically and inorganically.
We don’t only focus on driving efficiencies in a company’s current platform; we also strategically acquire add-ons, so companies grow that way as well. Last year for example, we confirmed a deal to purchase Kendrion’s automotive division, which we integrated with our affiliate company, Solero Technologies.
These carve-outs present a pathway for unlocking significant value while fostering operational efficiency. Many carve-outs operate in adjacent industries, offering opportunities for synergies and roll-ups. And because these divisions often don’t have the same management structures as parent companies, private equity firms have the opportunity to build management teams that they can work alongside and mentor in the carve-out company’s new era.
Crowdfund Insider: What will set successful private equity firms apart in an increasingly competitive lower-middle-market landscape?
Cyrus Nikou: As firms increasingly recognize the value of the lower middle market, the space is certainly becoming more crowded. This is a call to action for existing players in the space, and an opportunity to differentiate through deep industry expertise.
Closing deals efficiently will be a key differentiator. After all, being able to think outside the box and be creative and flexible with deals is no small thing.
Firms that bring operational expertise, digital transformation strategies, and supply chain optimizations will outperform competitors. Beyond financial and operational improvements, firms that invest in leadership development and talent retention will create lasting value.
At Atar Capital, we’ve experienced firsthand how a hands-on partnership approach, rather than purely financial engineering, is key to driving operational success.
We work closely with our affiliate companies, providing strategic guidance and leveraging resources, relationships, and add-on deals to ensure sustainable growth. It’s a long-term, entrepreneurial investment model that offers a distinct advantage in this competitive space.
Crowdfund Insider: What persisting misconceptions about the lower middle market hinder firm growth in the space?
Cyrus Nikou: There are plenty of persisting beliefs about the lower middle market, which is often seen as lacking scalability. However, the right strategic investments and operational support unlock strong and sustainable growth for companies of all industries. There is also a perception that lower middle market firms carry higher risk, yet those with strong fundamentals and experienced leadership offer stable, long-term opportunities.
Some investors underestimate the value creation potential, assuming only large-cap deals or specific exit options yield significant returns. They also assume that exits are constrained, but strategic acquisitions, secondary buyouts, and alternative capital markets are expanding options. They might also assume lower-middle-market strategies mirror large-cap playbooks, when as we discussed, success requires a tailored, hands-on approach.
Crowdfund Insider: What are some of the emerging top priorities for private equity firms, particularly in the lower-middle market?
Cyrus Nikou: Supply chains have always been critical to daily company operations, but geopolitical shifts and logistics disruptions are making investments in this space increasingly critical.
Vertically integrated organizations can weather more instability, but other, smaller companies will rely on resources that can prove their dependability when it comes to fulfilling orders and maintaining steady prices. Carve-out companies that exist as critical points in the supply chain will be increasingly attractive to investors.
Firms are also prioritizing companies with strong environmental, social, and governance (ESG) practices, as well as those that reshore and prioritize domestic operations. Bringing jobs and production back into the US are a key focus of both the new administration and investment firms. The logic is simple: After all, if you focus on building products and goods in the US, you avoid potentially costly tariffs.
I also firmly believe that private-equity firms that focus on impact-driven investing will build sustainable and accelerating growth. Investing with purpose means you’re not buying a manufacturer simply because it’s profitable, but also because it makes a societal impact.
WinCup products like phade straws, paper cups, and cutlery are marine biodegradable, and speak to a current demand by consumers to upgrade their everyday products to environmentally friendly options without sacrificing quality or ease of use. Such features establish these products as an indispensable part of the current market, and a mainstay for future generations.
Crowdfund Insider: What impact will U.S. deregulation and policy shifts have on private equity investments?
Cyrus Nikou: The expected regulatory rollbacks under the new administration, particularly under the financial services and healthcare space, could create a more favorable PE environment.
Deregulation in energy and manufacturing may lead to expanded investment opportunities, particularly as companies focus on reshoring jobs and bringing their manufacturing processes back to the US. Potential corporate tax changes could influence deal structures and return expectations, and looser regulations in financial services and healthcare could create new investment avenues.
At the same time, policy shifts like new tariffs could introduce challenges and uncertainties for cross-border transactions.
These changes may impact international expansion and supply chain realignments, affecting portfolio companies across various industries. And just as deregulation may spur innovation, companies interested in global markets will still have to contend with varying regulations across markets. These are all things to consider as firms and their portfolio company leadership work to establish their approach in the short- and long-term.
Crowdfund Insider: With global economic and geopolitical uncertainty, how should PE firms adapt their strategies?
Cyrus Nikou: FX fluctuations and trade tensions could complicate leveraged transactions, as well as cross-border and global dealmaking. Firms must adopt a proactive risk management approach, ensuring resilience amid market uncertainty.
Diversified portfolios and sector-focused strategies will be key to navigating these shifts. At Atar Capital, we pride ourselves on our varied approach to our affiliate companies – across automotive, consumer packaging, and mental-health service sectors, just to name a few – as well as the strategic guidance we give these companies every day.
To weather potential storms, investment firms would be wise to focus on companies with strong balance sheets and adaptable business models. Market downturns create opportunities to acquire undervalued assets. At the same time, potential tariffs and their outcomes could impact deals and carveouts.
Companies might have operations in Europe or manufacturing processes in Mexico, for example. It’s as important as ever for firms to remain nimble and navigate their decisions and deals carefully. Vetting every aspect of a company’s operation remains a critical part of the deal-making process.