There are a few reasons why private equity firms might be more focused on smaller deals:

1. Risk management: Smaller deals tend to be less risky than larger ones, as they involve a smaller investment and therefore a lower potential for loss.

2. Greater potential for return on investment: Private equity firms typically aim to achieve a high return on investment (ROI) for their investors. Smaller deals may offer a greater potential for ROI, as there is often more room for growth and improvement in smaller companies.

3. Easier to manage: Smaller deals may be easier to manage, as there is often less complexity and fewer stakeholders involved. This can allow private equity firms to more effectively implement their strategies and realize value from their investments.

4. Access to a wider range of opportunities: Private equity firms may also be more focused on smaller deals simply because there are more of them available. With a wider range of opportunities to choose from, private equity firms may be more likely to find deals that align with their investment criteria and goals.

Middle-market private equity pros expect to see a preference for smaller, tuck-in acquisitions of companies instead of bigger, signature platform purchases as the world of mergers and acquisitions eyes a more uncertain dealscape in 2023.

Tighter credit is one reason for this pivot toward buy-and-build strategies for growing companies, along with a gulf between the that price sellers want to get for the companies and what buyers are willing to pay in private markets.

“Private equity firms want the most the market is willing to pay for their trophy assets, so they won’t sell them in this market,” said Graham Weaver, CEO and founder of Alpine Investors, a specialist in software- and services-company deals.