Country / Language

Momentum 2017 Middle Market Private Equity Outlook

As 2017 continues to take shape, a number of significant dynamics in the market are presenting private equity players with both challenges to navigate and growth opportunities to seize.

CohnReznick’s 2017 Middle Market Private Equity Outlook analyzes the issues and activity drivers that will most impact the private equity industry over the course of the year. In addition to the Trump administration’s plan for significant regulatory and tax code change, these drivers also comprise strategies and processes that PE firms should consider now - employing data analytics to drive operational improvements, leveraging digital innovation to accelerate growth, and embracing the diligence process to create value.

This report, presented here in four part excerpts and available in its entirety for immediate download, highlights key trends and issues that private equity firms in the middle market should be aware of as they plot their growth strategies for the year.

Part 1 of 4: The Private Equity Climate in 2017

2016 was another strong year for the private equity industry with global PE firms raising nearly $300 billion in capital and investing $519 billion in almost 7,000 deals, according to PitchBook. So what can we expect for 2017? The first word that leaps to mind is ‘uncertainty’.

“There are a lot of what-ifs right now,” said Jeremy Swan, National Director of CohnReznick’s Private Equity and Venture Capital Industry Practice. “There’s industry uncertainty, global market uncertainty, regulatory uncertainty, not to mention the uncertainty of just trying to find the right deals at the right price.” One of the biggest unknowns is what the new Trump administration and its policies will mean for private equity.

On the one hand, President Trump has vowed to dramatically lower corporate taxes from 35% to 15%. This could free up more cash that portfolio companies can use to beef up their internal operations and pursue add-on acquisitions. “Lower corporate taxes could be a positive for the market in terms of companies having more cash to reinvest in their growth efforts,” said Steven Morgenthal, Managing Director of the Operating Partner program at Argosy Private Equity. “Those dollars can go to everything from upgrading and improving their technology infrastructure to investments in new sales channels.”

On the other hand, Mr. Trump has spoken passionately about eliminating private equity’s carried interest tax deduction. If carried interest is treated as ordinary income rather than as an allocation of capital gains, that could raise the tax on carried interest to as high as 39.6% from about 20% for the highest earners. Such a move would dramatically impact the earnings of most PE professionals.


Return to top>>


Part 2 of 4: How Alternative Investors Are Impacting Private Equity

Family offices have historically taken the role of limited partner, relying on private equity firms to make critical investment decisions. But this is changing. To gain greater control of their investment strategies, and to avoid management fees, direct investment will become more popular among family offices in 2017.

In fact, many have already taken steps to create infrastructure to support this new way of doing business, including the hiring of former PE professionals and other industry experts to source and manage deals.  “Direct investing offers potential for greater returns when compared to investing as an LP,” says John Bova, a client relationship executive with CohnReznick’ s Private Equity and Venture Capital Industry Practice. “Other advantages include increased transparency and greater control of investments.”

For family offices testing the direct investment waters for the first time, so-called club deals are proving to be a good fit. A club deal provides deal access to investments through a lead family office that may look like, and market itself like, a traditional private equity fund. “This ‘investment club’ offers a test for family offices to work with other co-investors and perhaps gain some experience with board sitting post-close.

Return to top>>


Part 3 of 4: Specialize to Stand Out

Specialization will continue to be a critical factor for Private Equity firms that are determined to separate themselves from the pack in 2017. In an increasingly heated private equity environment, a sector-focused approach to private equity can help funds win new deals and outperform the competition.

A landmark report from research firm Cambridge Associates found that sector specialists significantly outperform generalist funds due to their intimate knowledge of an industry and their ability to demonstrate deep expertise in a focused field. Specialist firms that have a track record of results are increasingly in vogue with both limited partners and mid-market companies. That’s because specialized firms have a deeper understanding of their particular markets and can potentially uncover superior opportunities, generate proprietary deal flow, and provide more effective advice and connections―especially compared to their non-specialized competitors.

Private Equity firms are finding additional ways to distinguish themselves in 2017. For example, some firms are targeting deals in which they take a minority share of the business and let the current business owner retain the majority share. Private Equity funds that are willing to allow current owners to roll over a more significant amount of equity could ingratiate themselves to sellers and thus win more deals.  “Typically the PE firm wants the owner to roll over a maximum of 10% in equity, but I now have several active transactions where the PE firm is letting them roll over up to 30%,” says Marc Nadritch, a partner in CohnReznick’ s Transactional Advisory Services Practice. “That could become a significant differentiation strategy in the industry going forward, especially in a robust economy.”

Return to top>>

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Search Our People

Search Our People

Look ahead. Gain insight. Imagine more. Is your business ready to break through?

View our new TV commercial..

Industry Outlooks

Industry Outlooks

Gain insight into what is ahead for the Commercial Real Estate, Technology and Middle Market Private Equity industries.


Learn about our upcoming events.


Working With Us

Working With Us

What makes CohnReznick different from others in our profession? And what should our clients come to expect when working with us? The answer is The CohnReznick Advantage. Contact us to learn how we can out the CohnReznick Advantage to work for your business.


The value of an organization is determined by the skills and qualities of its leaders. With more than 280 partners serving clients nationwide, CohnReznick is renowned for the diverse experiences, knowledge and backgrounds of its leadership.

Learn More


We align our services in three segments: Accounting and Assurance, Tax, and Advisory. This approach allows us to provide holistic solutions to complex business problems and to seize upon opportunities requiring an integrated approach.

Learn More


Accounting and tax issues different significantly based on an organization's industry. We provide clients with expertise in nearly two dozen industries – we know the opportunities, the obstacles, the competitive landscape.

Learn more


CohnReznick professionals are thought leaders in their industries. Clients benefit from relevant and timely economic, legislative and industry insights that can keep them a step ahead of competition.

Learn More

Global Reach

Our involvement in the Nexia International network of firms enables us assist our clients wherever they do business-providing local expertise and connections wherever they needed. Nexia is comprised of 20,000 professionals operating in over 100 countries.

Learn More