Despite the influence of COVID-19, Q1 middle market deal flow kept pace with 2019. This is largely because most of the deals that closed in the quarter were already negotiated before the full impact of the pandemic had been felt. Although the lower middle market deal sizes declined, PEs used add-ons in a greater capacity. Add-on deals are often easier to complete since they are smaller and less dependent on structured debt financing.
The turmoil attributed to COVID-19 continues and there is not a clear end in sight. The full impact of the pandemic has had on the economy is equally vague. In Q1, the US economy contracted by 5%, a large swing from the IMF projected 2% annual growth at the beginning of 2020.