PE Firms Are Back – What That Means If You’re Thinking About Selling

For much of 2022 through 2024, private equity activity in the lower middle market was notably subdued. Rising interest rates made deal financing more expensive, valuation gaps between buyers and sellers were difficult to bridge, and many PE firms chose to focus on their existing portfolio companies rather than pursue new acquisitions. Business owners who had been thinking about selling found a thinner buyer market and, in many cases, deferred their plans.

That dynamic has shifted. The conditions for middle market M&A activity have improved materially heading into 2026, and for business owners who have been on the sideline waiting for a better market, the window is opening.

What’s driving the change

Private equity firms accumulated significant undeployed capital during the slowdown. Capstone Partners’ 2026 M&A Outlook estimated approximately $1.6 trillion in dry powder at year-end 2025. Limited partners, who provide the capital that PE funds invest, have been pressing sponsors to deploy that capital. After five consecutive quarters of platform acquisition growth, PE is clearly back in the market.

Interest rates, while still elevated compared to the 2020–2021 era, have stabilized. Lenders are active for quality assets, and deal financing is available for companies that meet the bar. CEO confidence, which dropped sharply in mid-2025, recovered to more neutral levels through the back half of the year according to The Conference Board, setting up a more constructive environment for transactions.

Bain & Company’s M&A report covering 2025 noted that global deal values reached approximately $4.9 trillion, the second-highest on record, with both PE and strategic buyers active. The middle market, according to the report, is expected to see continued activity through 2026 as conditions stabilize.

What PE buyers are looking for in 2026

The return of PE capital doesn’t mean that every business is going to find a premium buyer. The market described by every major M&A advisor heading into 2026 is one where buyers cluster around the highest-quality assets and apply significant scrutiny to everything else. Companies with clean financials, predictable revenue, defensible margins, and a management team that can articulate the growth story are generating competitive interest. Companies that don’t meet that bar are still closing deals, but often with more conditions, longer timelines, and less favorable terms.

The specific things PE buyers focus on at the lower middle market level: quality of earnings (sustainability and normalization of EBITDA), revenue quality (recurring versus one-time, customer concentration, contract structure), management team depth, and the state of the financial reporting function. A company whose financials require significant cleanup or explanation during diligence is a company that’s given the buyer leverage they didn’t need to have.

What this means if you’re thinking about selling

If you’ve been waiting for a better market, the market is improving. But the improvement benefits prepared sellers more than unprepared ones. The gap between what a well-prepared company achieves and what a company that walks into the process without the right financial foundation achieves, in terms of valuation, deal structure, and transaction certainty, is wide and getting wider as buyers get more selective.

The companies that will do best in the 2026 and 2027 market are the ones that started their preparation twelve to eighteen months ago. If you haven’t started, the next best time is now.

If a transaction in the next one to three years is on your mind, let’s have a conversation about where your business stands today and what preparation would actually involve.