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Lower Middle Market M&A Trends in 2026 The lower middle market enters 2026 in a recalibrated but opportunity-rich environment. After muted deal activity through much of 2023–2024, transaction dynamics are stabilizing. Capital remains abundant, buyers are selective, and valuations are increasingly tied to earnings quality and execution certainty rather than growth narratives alone. This shift rewards prepared sellers and penalizes under-documented businesses. Deal Volume and Capital Availability Private equity dry powder exceeds $1.2 trillion globally, with a significant portion allocated to lower middle market strategies. Despite this capital overhang, deal volume has not rebounded evenly. Key data points • Middle market deal volume declined roughly 25–30 percent from peak 2021 levels • Add-on acquisitions now represent more than 70 percent of PE transactions • Platform deals increasingly target EBITDA between $2M and $8M Buyers remain active, but underwriting standards are tighter and timelines longer. This shift rewards prepared sellers and penalizes under-documented businesses. Valuation Multiples and Pricing Discipline EBITDA multiples in the lower middle market have compressed from 2021 highs but stabilized entering 2026. Observed ranges by quality • $1–3M EBITDA: 4.5x–6.0x • $3–7M EBITDA: 5.5x–7.5x • Premium assets with recurring revenue and low owner dependency: 8.0x+ Buyers now prioritize normalized EBITDA, margin stability, and forward visibility over top-line growth alone. Buyer Behavior Shifts Private equity firms dominate deal activity, accounting for roughly 40–60 percent of completed transactions. Strategic buyers remain active where acquisitions drive immediate synergies, particularly in healthcare services, B2B services, and niche manufacturing. Key underwriting themes • Forward EBITDA credibility • Management depth • Customer and payer diversification • Predictable cash flow Sector-Specific Momentum Healthcare services Deal volume rebounded in outpatient care, urgent care, and ancillary services. Buyers favor multi-location platforms with diversified payer mix and compliance discipline. B2B servicesCommercial HVAC, roofing, and route-based services continue to attract add-on buyers due to predictable cash flow and scalability. ManufacturingSelective activity favors specialty and value-added manufacturers with repeat customers and pricing power. What This Means for Sellers 2026 favors sellers who prepare early, normalize earnings, and run structured, competitive processes. Buyers pay for clarity, not optimism.

Strategic vs Financial Buyers  Not all buyers value businesses the same way. Understanding buyer type materially affects price, structure, and certainty of close. Strategic Buyers Strategic buyers acquire to enhance existing operations. Typical motivations • Market expansion • Cost synergies • Vertical integration Strategic buyers may pay 20–40 percent premiums when synergies are clear. Trade-offs • Higher integration risk • Cultural disruption • Faster operational changes post-close Financial Buyers Financial buyers focus on returns driven by cash flow and exit multiples. Typical characteristics • EBITDA-driven valuation • Defined investment horizon • Structured consideration Financial buyers emphasize stability and growth optimization rather than operational absorption. Deal Structure Differences Strategic buyers • Higher upfront cash • Cleaner exits • Less rollover equity Financial buyers • Leverage-based structures • Seller rollover or earn-outs • Continued management involvement Risk and Certainty Strategic buyers can move quickly but may walk if synergies weaken. Financial buyers diligence deeply but close consistently when underwriting aligns. Choosing the Right Buyer The highest price is not always the best outcome. Certainty, structure, and alignment matter. A competitive process that attracts both buyer types maximizes leverage and optionality.

Lower Middle Market M&A Trends in 2026 The lower middle market enters 2026 in a recalibrated but opportunity-rich environment. After muted deal activity through much of 2023–2024, transaction dynamics are stabilizing. Capital remains abundant, buyers are selective, and valuations are increasingly tied to earnings quality and execution certainty rather than growth narratives alone. This shift rewards prepared sellers and penalizes under-documented businesses. Deal Volume and Capital Availability Private equity dry powder exceeds $1.2 trillion globally, with a significant portion allocated to lower middle market strategies. Despite this capital overhang, deal volume has not rebounded evenly. Key data points • Middle market deal volume declined roughly 25–30 percent from peak 2021 levels • Add-on acquisitions now represent more than 70 percent of PE transactions • Platform deals increasingly target EBITDA between $2M and $8M Buyers remain active, but underwriting standards are tighter and timelines longer. This shift rewards prepared sellers and penalizes under-documented businesses. Valuation Multiples and Pricing Discipline EBITDA multiples in the lower middle market have compressed from 2021 highs but stabilized entering 2026. Observed ranges by quality • $1–3M EBITDA: 4.5x–6.0x • $3–7M EBITDA: 5.5x–7.5x • Premium assets with recurring revenue and low owner dependency: 8.0x+ Buyers now prioritize normalized EBITDA, margin stability, and forward visibility over top-line growth alone. Buyer Behavior Shifts Private equity firms dominate deal activity, accounting for roughly 40–60 percent of completed transactions. Strategic buyers remain active where acquisitions drive immediate synergies, particularly in healthcare services, B2B services, and niche manufacturing. Key underwriting themes • Forward EBITDA credibility • Management depth • Customer and payer diversification • Predictable cash flow Sector-Specific Momentum Healthcare services Deal volume rebounded in outpatient care, urgent care, and ancillary services. Buyers favor multi-location platforms with diversified payer mix and compliance discipline. B2B servicesCommercial HVAC, roofing, and route-based services continue to attract add-on buyers due to predictable cash flow and scalability. ManufacturingSelective activity favors specialty and value-added manufacturers with repeat customers and pricing power. What This Means for Sellers 2026 favors sellers who prepare early, normalize earnings, and run structured, competitive processes. Buyers pay for clarity, not optimism.