Private Equity Consolidation in the SML Sector: Strategic Acquisitions and Capital Efficiency in 2023–2025

The private equity (PE) landscape for small and medium-sized businesses (SML) has entered a transformative phase, marked by aggressive consolidation and strategic acquisitions. From 2023 to 2025, the sector has witnessed a dramatic shift as larger firms outmaneuver smaller players to capture market share, diversify asset classes, and achieve economies of scale. This trend is not merely a response to market pressures but a calculated strategy to align with evolving investor demands and regulatory realities.

Strategic Acquisitions: The New Normal in SML Consolidation

The consolidation wave in the SML sector is driven by a combination of investor preferences, rising compliance costs, and the need for operational scalability. According to a report by EY, major private equity firms have adopted a "one-stop shop" approach, acquiring smaller firms to offer diversified services such as private credit, infrastructure, and wealth managementBig gets bigger: How consolidation is reshaping Private …^[2]. For instance, General Atlantic's acquisition of Actis and BlackRock's $12.5 billion deal with Global Infrastructure Partners exemplify how firms are expanding geographically and vertically to meet investor expectationsPrivate equity is consolidating. What’s the good and …^[1].

Roll-up strategies—where multiple small businesses are consolidated into a single entity—have also gained traction. These strategies are particularly effective in fragmented sectors like healthcare services and logistics, where operational efficiencies can be rapidly unlockedRoll-up Strategy: Driving Growth in Private Equity^[3]. TPG's $2.7 billion acquisition of Angelo Gordon and EQT's $7.5 billion purchase of Baring Private Equity Asia underscore the industry's shift toward building diversified platforms capable of competing in a high-stakes environmentBig gets bigger: How consolidation is reshaping Private …^[2].

Capital Efficiency: Metrics and Market Resurgence

Capital efficiency has become a critical metric in evaluating the success of these consolidations. In 2024, U.S. private equity deal value surged by 19.3% year-over-year to $838.5 billion, with deal counts rising by 12.8% to 8,473Private Equity Report: 2024 Trends & 2025 Outlook^[4]. This rebound, the largest in three years, reflects improved financing conditions and strategic deployment of undeployed capital. The rise of megadeals—transactions valued at $5 billion or more—has further amplified this trend, with 18 such deals completed in 2024 compared to just seven in 2023Private Equity Report: 2024 Trends & 2025 Outlook^[4].

The efficiency gains are not limited to deal size. Technological advancements, particularly in AI-driven analytics, are enabling firms to optimize portfolio company performance and reduce operational overheadGlobal M&A trends in private equity and principal investors^[5]. For example, CVC Capital Partners' acquisition of Glendower Capital in 2024 was accompanied by a strategic investment in AI tools to enhance infrastructure asset managementBig gets bigger: How consolidation is reshaping Private …^[2].

Performance Metrics: IRR and MOIC as Barometers of Success

To assess the financial viability of these consolidations, investors and fund managers increasingly rely on metrics like Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC). IRR, which accounts for the time value of money, is particularly relevant in private equity due to the long-term nature of investmentsPrivate equity: Performance Metrics: Measuring Success: Performance Metrics in Private Equity^[6]. MOIC, on the other hand, provides a straightforward measure of total value returned relative to invested capital, offering clarity on absolute returnsPrivate equity: Performance Metrics: Measuring Success: Performance Metrics in Private Equity^[6].

The shift toward larger, more diversified firms has historically correlated with higher IRRs and MOICs, as these entities can leverage scale to reduce costs and enhance operational performance. For instance, the consolidation of DIF Capital Partners into CVC's infrastructure platform not only expanded its asset base but also improved its risk-adjusted returnsBig gets bigger: How consolidation is reshaping Private …^[2].

Implications and Future Outlook

The consolidation of the SML sector is reshaping the competitive dynamics of private equity. Smaller firms face existential challenges, while mega-managers dominate fundraising and investor relations. As noted by a 2025 report from S&P Global, private equity investment in the asset management sector hit a three-year high of $20.29 billion in 2024, driven largely by wealth management consolidationsBig gets bigger: How consolidation is reshaping Private …^[2]. This trend is expected to intensify as regulatory pressures and investor demands for transparency continue to mount.