Lower Mid-Market M&A Trends: What to Expect in 2026

The lower mid-market ($1M-$25M revenue) is entering a period of unprecedented activity. Several macro trends are converging to create the best acquisition environment in a generation.

The Demographic Wave

The most significant trend in lower mid-market M&A is demographics. Baby Boomers own approximately 2.3 million businesses in the United States. The oldest Boomers turned 80 in 2026. The youngest are 62. The majority of these owners have no succession plan.

Over the next decade, an estimated $10 trillion in business assets will change hands. Most of these businesses are in the $1M-$25M revenue range. Most are in fragmented industries perfect for roll-up strategies. And most owners have not yet seriously engaged with the question of what happens to their business when they are ready to step back.

For acquirers, this is the opportunity of a lifetime. But it also means competition for the best targets is intensifying. The firms that source systematically will capture disproportionate value. The ones relying on broker relationships and conference networking will fight over whatever is left.

Dry Powder and Competition

Private equity dry powder remains at record levels. More capital is chasing lower mid-market deals than ever before. This is driving several dynamics:

• Multiple expansion on brokered deals. Auction processes are more competitive, pushing purchase multiples higher for marketed transactions.
• Premium on proprietary sourcing. The gap between brokered and proprietary multiples is widening, making investment in sourcing infrastructure more valuable.
• Smaller funds entering the space. Micro-funds, independent sponsors, and search funds are adding to the buyer universe, increasing competition for the smallest deals.

Technology Adoption

The lower mid-market has historically been technology-resistant. That is changing rapidly:

• AI-powered sourcing is replacing manual database searches and cold-call campaigns
• Virtual data rooms are making diligence more efficient for smaller transactions
• Cloud-based financial tools are giving buyers better visibility into target company performance
• Digital marketing is enabling smaller businesses to punch above their weight, making them more attractive acquisitions

Deal Structure Evolution

Sellers in the lower mid-market are becoming more sophisticated about deal structures:

• Earn-outs are increasingly common as a mechanism to bridge valuation gaps
• Seller financing remains a key feature of lower mid-market deals (60-70% include some seller note)
• Equity rollovers are gaining traction as sellers realize they can participate in the upside of a professionalized platform
• Management incentive plans are becoming standard for retaining key employees post-acquisition

What Smart Acquirers Are Doing

The firms positioning themselves best for 2026 and beyond are:

1. Investing in sourcing infrastructure. Whether through AI agents like Ted, dedicated sourcing teams, or both, the best firms are building pipelines that produce consistent, proprietary deal flow.

2. Developing sector expertise. Generalist strategies are dying. The firms winning the best deals have deep vertical expertise that gives them an edge in evaluation, negotiation, and integration.

3. Building owner relationships early. Starting conversations 12-24 months before a transaction is the ultimate competitive advantage. The firms that nurture the longest pipelines close the best deals.

4. Streamlining diligence. Reducing the time and cost of diligence means you can evaluate more opportunities and move faster when you find the right one.