Private equity shops have increasingly been finding it difficult to find good bargains as valuations have dramatically risen since the financial crisis. However, a CNBC report said there's a certain part of private equity that isn't too worried about valuations. These comprise the middle market firms that concentrate on small and mid-sized companies or those that post yearly revenues below $500 million.

The Small Business Investor Alliance President Brett Palmer told CNBC that good news is in store for those investing in lower middle market businesses since growth in the sector is getting stronger. The Small Business Investor Alliance is a Washington, DC-based trade association of lower middle market funds and investors.

Palmer added, "Although it's a very competitive deal market, there are many more businesses in the lower middle market. Although bigger, there are fewer choices at the very large end of the spectrum."

The report said there is good reason why middle market investors like Palmer can be bullish. A recently-released survey from the National Center for Middle Market said that in 2013, the growth of smaller businesses is five times faster than the benchmark S&P 500. Company executives are saying that growth is set to increase this year. Their forecast over the next 12 months is a 4.3% revenue growth and 2.2% employment growth, the report said.

An increasing number of private equity companies that look for opportunities in small businesses do so through business development companies or BDCs. These are publicly-traded firms that invest in the debt of smaller companies and are managed by private equity firms. The public can invest in them unlike standard private equity funds. Their popularity has grown since their leveraged debt investments have done well in the bull market, giving investors good returns, the report said.

Dealogic data said that since 2010 there were already 21 initial public offerings  of BDCs which has raised a total of $2.16 billion, CNBC reported.