If you own a business and you've been watching the news, you've probably picked up on the fact that deal activity has been strong. But most of what gets reported is about large corporations and billion-dollar transactions. Not much filters down to what's actually happening for businesses like yours.
Here's a plain-English breakdown of what 2025 looked like in M&A and what it signals for the lower middle market heading into 2026. We're drawing on two sources: PitchBook's year-end data and a fresh survey of 107 lower middle market dealmakers published by Axial in March 2026.
The Headline Numbers Were Strong, But the Story Is More Complicated
Globally, M&A crossed 50,000 deals for the first time ever in 2025, up 12.4% from the prior year, with total deal value approaching $5 trillion, a 37% increase year over year. Texas had a record year of its own, with 1,344 deals totaling $328.1 billion in deal value, up 41.5% compared to 2024.
Those are impressive numbers. But if you own a business in the $1M–$50M revenue range, you probably didn't feel that. And there's a reason for that.
The big numbers were largely driven by large transactions. Megadeals over $1 billion accounted for a disproportionate share of total value. Meanwhile, the lower middle market had a choppier experience. According to the Axial survey, 41% of M&A advisors reported closing fewer than half of their intended deals in 2025. There was a real gap between market activity at the top and what was actually getting done at the lower end.
That's not a reason to be discouraged. It's a reason to understand what was actually happening and what it means for you.
Why Deals Fell Apart in 2025
The Axial survey asked dealmakers to identify the single biggest reason deals failed to close. The results were telling:
- Valuation expectations: 28.3%
- Diligence findings: 24.5%
- Macroeconomic uncertainty: 20.8%
- Financing constraints: 17.9%
The top two reasons, valuation gaps and what comes out during due diligence, are both things a seller has direct control over. Buyers didn't disappear. Capital didn't dry up. Deals fell apart because sellers expected more than the numbers supported, or because the numbers themselves didn't hold up under scrutiny.
One advisor in the survey put it plainly: "There is an enormous amount of companies on the market and plenty of dry powder, but very few businesses have what it takes — quality of earnings, transparency, owner independence — to justify the prices owners are expecting."
Another noted: "Deals placed on hold are paused for readiness or alignment — financials not current, or seller expectation gaps — not lack of buyer interest."
That's the real story of 2025 in the lower middle market.
The Good News: Most Deals Didn't Die, They Stalled
Here's something worth noting. When advisors were asked whether unfinished deals died or went on hold, nearly half said more deals were paused than fell apart entirely. Only 13% said more deals died outright.
That matters. It means buyer interest was real. The deals that didn't close largely didn't close because of seller preparedness issues or valuation misalignment, not because buyers walked away from the market. That's a very different problem, and a solvable one.
Private Equity Is Still Very Active, Especially at Your Level
One of the more relevant data points for business owners in the $1M–$50M revenue range: private equity continues to be a dominant force, and a lot of that activity is focused squarely on smaller businesses.
PE-backed add-on acquisitions made up 67.3% of all US middle market PE deals in 2025. That means the majority of PE deal activity isn't large funds chasing large targets. It's PE-backed companies actively hunting for smaller businesses to acquire and grow. That's a real, active buyer pool for lower middle market sellers, and it's been growing steadily for years.
What to Expect in 2026
The Axial survey asked 107 dealmakers how confident they were that 2026 would be a stronger year than 2025. Nearly 71% said they were confident, including 25.7% who were very confident. Most expect valuation multiples to hold steady, with a slight lean toward improvement as buyer competition increases and financing conditions gradually ease.
That said, the same headwinds that created friction in 2025 haven't gone away. Macroeconomic uncertainty, including tariffs, geopolitical tension, and interest rate policy, was cited as the top factor putting downward pressure on valuations. And buyer discipline has increased. The share of buyers willing to stretch on valuation for a high-quality asset actually decreased compared to mid-2025. Buyers are more selective, not less.
One dealmaker offered a perspective that stuck with us: "All the ingredients are there: record dry powder that's aging out, financing conditions improving, and a huge wave of boomer-owned businesses that can't wait forever. The question is whether buyers and sellers can get aligned on value."
That alignment question is really the whole ballgame.
The Bottom Line
The market is active. Buyers have capital. Deal flow is increasing. And 70% of dealmakers expect 2026 to be better than 2025.
But the data is also clear that showing up unprepared, with unrealistic expectations or financials that don't hold up, is exactly what killed deals last year. The business owners who will get the most out of this market are the ones who have their house in order before they ever talk to a buyer.
If you're thinking about selling in the next one to three years, the time to start preparing is now.
