Bravaldo Capital Advisors has just released its M&A and Private Debt Market Observations 2025 Recap and 2026 Outlook.
Below are key highlights that Andersen Alumni and middle‑market business owners may find especially relevant.
The last 18–24 months have clarified something important about the lower middle market: This is not a momentum market—it is an execution market.
Market Recap: Where We Are Coming From
While 2025 marked a return to stronger M&A activity, nearly $5 trillion in global deal value, the recovery was uneven. Megadeals drove much of the headline growth, while the broader market remained selective. Buyers focused on earnings visibility, recurring revenue, and downside protection, and that discipline continues into 2026.
Private equity re-engaged meaningfully, with deal activity exceeding $1 trillion, but fundraising softened as liquidity tightened. The result is a market where capital is available, but it is being deployed with precision—not urgency.
What’s Driving 2026 Dealmaking?
1. Consolidation Is the Story
The lower middle market continues to be defined by buy‑and‑build strategies. Consolidating highly fragmented industries remains the primary way private equity deploys capital.
For business owners, this shifts the equation:
· Valuation is increasingly driven by where a company sits in the consolidation cycle—not just performance.
· The best outcomes often occur during active consolidation, when multiple buyers are building scale.
· Waiting until a market matures typically means fewer buyers and lower competitive tension.
2. Capital Is Flowing to Essential Business Services
Buyer demand is concentrated in sectors with recurring and contractual revenue, non‑discretionary demand, and scalable operating models.
· Tech‑enabled business services
· Infrastructure and industrial services
· Facility services
· Data‑ and AI‑driven ecosystems
3. Private Equity Is Under Pressure to Exit
Lower middle market private equity is facing rising pressure to generate liquidity due to weak distributions, LP overallocation, and slower fundraising, all while sitting on a large backlog of unsold portfolio companies.
Exit activity is expected to increase gradually, but not through a return to traditional high-multiple sales; instead, the market is shifting toward sponsor-to-sponsor transactions, continuation funds, and other structured liquidity solutions.
The result is a more active but less efficient exit environment, where LMM funds feel disproportionate pressure, hold assets longer, and rely more heavily on financial buyers than strategic or IPO exits.
4. Stability Helps—But Doesn’t Drive Deals
Entering 2026, the macroeconomic environment is more stable. Interest rates are easing, inflation has moderated, and markets are adjusting to 2025 tariff policy shocks.
Borrowing costs remain structurally higher, but reduced volatility is improving underwriting confidence. Buyers remain disciplined, with leverage averaging approximately 3.6x debt‑to‑EBITDA. reinforcing a market focused on acquisitions of quality companies where scale and operational improvements drive value over strictly leverage-driven returns.
Buyers are expected to remain disciplined, prioritizing conservative leverage, and businesses with limited foreign exchange exposure, pricing power, and resilient margins over aggressive multiple expansion. With significant dry powder and limited exits, sponsors are leaning into smaller, more executable deals and structured transactions.
5. Geopolitical Risk & Current Tax Policy Are Influencing Timing
With the widening Middle East war and other geopolitical tensions, the effects of higher oil prices are starting to filter through the U.S. economy and ultimately middle-market business performance.
As midterm elections approach future changes to current capital gains and carried interest tax policy may gain momentum.
For many sellers, the focus is shifting from maximizing price to maximizing certainty of proceeds.
What Separates Winners in This Market
The companies achieving the best outcomes today are prepared and well-positioned:
§ Clean, credible financials
§ Recurring and repeatable revenue
§ Strong management teams
§ Alignment with active acquisition strategies
Those that wait, particularly in sectors where consolidation is advancing—often find themselves with fewer buyers and less competitive tension.
Bottom Line
The 2026 market is not sizzling—but it is open for business.
Private equity is under a dual mandate in 2026- return capital and put money to work. Capital is there. Strategic buyers are active.
But the bar for owner-founder, closely held and family business sellers is higher. This is a market that rewards seller preparation, positioning, and alignment of consolidation timing within your industry coupled with good timing for specific business performance.