You can use Camera Boom ([Spring Arm Component][1]) to have nice smooth camera location transitions.
In the component enable the camera lag and set it to desired value (lower == slower):
When having the camera on your character (you can see the UE example TopDown or ThirdPerson templates to see how it’s added there) you can use it like that, e.g. in EventTick or in some timer:
Then the camera will follow the middle point smoothly, even in case of player teleport.
I’ve tested it, here is how it looks like, with sudden player teleport included:
[(Smoother version)][5]
You can also use the SpringArmComponent Target Arm Length to add some zoom in/out depending on your Player1 <—> Player2 distance.