Blockbuster buyouts may be rare this year, but in our latest issue of Dealmaker magazine we discover small is still beautiful. Indeed, action in the middle market has rarely been more brisk and some savvy players are creatively mining it.

It's more than just a theory that the perception of a recession, spread by the media and word of mouth -- whether or not economic indicators are there -- can actually cause one. Consumer confidence, of course, is a leading driver of growth.

But does this concept hold when dealing with far more sophisticated observers, who aren't necessarily swayed not to buy a car because Fox News airs a story about the price of rice? Sophisticated observers like, say, the M&A world, filled with financial professionals whose success more or less entails reading the markets correctly? The past few months have provided something of a test, with headlines like at the gates of hell, from the Economist, bolstering the notion that the private-equity sky is falling.

Such an environment provides an opportunity for savvy dealmakers to make serious returns, as long as they're prepared to adapt. The rules until recently -- cheap debt and outbidding one's opponents -- have been replaced by smart debt and outthinking one's opponents. Whereas two years ago, just about anyone with a smidgen of money could do a deal, we've now entered a period in which to create fruitful opportunities, it helps to be a true master.

By and large, those opportunities are presenting themselves in the middle market, where a sweet spot has emerged in transactions between $250 million and $1 billion in enterprise value. In April, for example, instead of doing a multibillion-dollar, headline-grabbing deal, the Carlyle Group partnered with J.H. Whitney, a middle-market buyout firm, to purchase Texas-based Authentix, which develops and delivers authentication and brand-protection devices, and also works with state and local governments to collect excise taxes for goods such as cigarettes. Terms were not disclosed, but sources confirm that Carlyle's outlay was paltry compared to, say, its $6.3 billion Manor Care deal last year. The total price tag, Dealmaker estimates: a bit over $100 million.

"It's undoubtedly a more challenging time, but extremely talented dealmakers are taking advantage of the turmoil," says David Mussafer, managing partner of Advent's North American buyout group. "The challenging environment is forcing firms to really look closely at their deals and make wiser choices. For this reason, this could wind up being one of the better vintage years for funds."

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