Overview
On February 2-4, 2026, Michael Stone and Zac Venos attended the Association for Corporate Growth (ACG) M&A South Capital Connection in Atlanta, GA, along with hundreds of private equity firms, investment banks, lenders, strategic acquirers, and advisors across the middle market. Coming out of one of the most unpredictable deal cycles in recent years, the prevailing sentiment was one of realistic optimism as deal makers assess a market shaped by volatility in 2025 and improving tailwinds heading into 2026. Conversations throughout the event consistently highlighted the following themes:
- 2025 dealmaking was volatile with strong Q1 momentum, Q2 pauses and withdrawn deals, and a Q3/Q4 rebound that improved confidence across the market.
- Competition for high‑quality middle‑market businesses intensified as larger sponsors moved downstream and structured consideration became essential to reconciling valuation expectations.
- Tariffs emerged as a primary disruptor, affecting metals, fabrication, industrial equipment, building products, auto parts, and other supply‑chain‑intensive industries.
- Valuations remained steady across business services, healthcare and healthcare technology, consumer services, and infrastructure‑linked categories.
- Sectors positioned for strong activity in 2026 include business services, healthcare, consumer and residential services, youth sports, better‑for‑you and ethnic food categories, critical infrastructure (including data‑center‑adjacent businesses), and industrial distribution supported by OEM onshoring demand.
- Dealmakers expect a disciplined, cautiously optimistic 2026 as policy shifts and consumer sentiment remain critical pressure points.
Market Volatility in 2025
After a strong start in Q1, the 2025 deal market slowed noticeably in Q2 as uncertainty surrounding trade policy and macro conditions persisted. Many processes were paused or withdrawn, muting overall deal volume even as activity strengthened meaningfully in the second half of 2025. Deal activity marginally recovered in Q3 and Q4 as overall market sentiment improved, financial visibility cleared, and a renewed sponsor appetite helped restore momentum. However, headline deal value benefitted disproportionately from a small number of large transactions rather than broad‑based middle‑market activity.
Heightened Competition for High-Quality Businesses
The common narrative among the private equity attendees was an overall shortage of high-quality businesses in the middle market. Platform-quality companies with desirable characteristics such as diversified revenue bases, stable demand, and strong management continuity remained scarce. As a result, structured transactions became a central component of competitive bidding. Earnouts, milestone‑based consideration, and flexible deal structures allowed buyers to remain disciplined while offering sellers pathways to achieve desired outcomes. From a one-thousand-foot view, private equity firms are facing pressure to deploy capital in an environment where exits are muted. This heightened competition has caused larger sponsors to migrate into the lower middle market, pushing valuations higher and compressing the buyer universe for smaller companies.
Tariff Impacts Across Industrial Sectors
Tariff‑related impacts dominated discussions, particularly among industrial and manufacturing participants. Sectors such as metals, fabrication, building products, auto parts, and industrial equipment experienced heightened volatility in input costs and sourcing decisions. Larger companies with well‑developed supplier networks and diversified geographies were better positioned to navigate the uncertainty, while smaller firms faced greater challenges in determining how and how much to pass through additional costs. Several attendees noted that while tariff conditions may ease over the coming year, the environment now represents a structural consideration rather than a temporary disruption, pushing companies toward strengthened supplier relationships, enhanced customer communication, nearshoring strategies, and more robust diligence around cost exposure.
Valuations and Buyer Priorities
Despite macro uncertainty, high‑quality businesses continued to command strong multiples, particularly in business services, healthcare, consumer services, and infrastructure‑linked sectors. Buyers maintained a strong focus on fundamentals including diversified customers, non‑cyclical demand, and stable cash flow. The gap between buyer and seller expectations narrowed meaningfully compared to recent years, aided by clearer market benchmarks, healthier credit markets, and reduced influence from the inflated valuation environment of 2021.
Financing Conditions Remain a Critical Tailwind
One of the more supportive dynamics in 2026 is the strength of the debt markets. Private credit and commercial lenders remain active and competitively positioned, offering attractive terms and structures to high‑quality borrowers. Several sponsors noted increased availability of dividend recapitalizations as a tool for returning liquidity to investors in portfolios where exits have been delayed. Importantly, many attendees noted that access to financing is not a limiting factor for deal flow; rather, the constraints lie in valuation uncertainty and limited availability of top‑tier companies. With credit availability strong, buyers are well‑equipped to pursue attractive opportunities as they emerge.
Sector Themes to Watch in 2026
Attendees noted several industries that are particularly well-positioned for strong M&A in 2026. Business services continue to benefit from recurring revenue models and consolidation dynamics. Healthcare and healthcare technology attract investor interest due to demographic tailwinds and defensive characteristics. Consumer and residential service businesses remain appealing due to relatively low capital requirements. In the food and beverage sector, shifting preferences among higher‑income consumers drive interest in better‑for‑you, high‑protein, and ethnic food categories. Critical infrastructure assets, particularly those connected to the data‑center ecosystem, remain in high demand. Industrial distribution continues to experience momentum, supported by onshoring trends, resilient demand in MRO and testing/measurement, and OEM preference for domestic suppliers.
2026 Outlook
Dealmakers described 2026 with terms such as disciplined, measured, and realistically optimistic. Momentum from late 2025, coupled with strong lending markets and clearer valuation benchmarks, is supporting expectations for improved deal flow this year. However, policy developments, tariff conditions, and consumer sentiment remain important factors to monitor. 2026 continues to favor business owners who are thinking about selling. High‑quality companies remain in short supply, while private equity firms, strategic buyers, and lenders all have significant capital they need to deploy. This imbalance keeps valuations stable and competition strong. For well‑run businesses with consistent earnings, diversified customers, and clear growth opportunities, buyers are willing to pay premium prices.
Why Partner with PW&Co
Over the years Porter White’s M&A team has helped business owners navigate the complexities of the deal process by providing structure, market knowledge, and disciplined execution to facilitate value-maximizing transactions that align with their long-term objectives. With competition high and diligence standards increasing, having an experienced advisor ensures you capture the full benefit of today’s market and avoid leaving value on the table. If you are interested in selling your business, acquiring a business, or learning more about what your business is worth, please contact Michael Stone, Zac Venos, or visit us online to learn more.
