2025 in Review
The panel noted that 2025 was a choppy and challenging year in the middle market, with the M&A landscape marked by extended timelines, broken deals, and widespread hesitation (despite dropping interest rates and improving access to capital). Uncertainty around US tax policy, federal funding levels, and geopolitical developments made buyers somewhat more cautious than previous cycles, which translated into extended legal and financial due diligence as buyers prioritized quality, low-risk companies. Some buyers even looked to foreign companies in their search for these quality targets.
Our panelists observed that middle market M&A activity lagged in 2025 as mega deals carried headline volume, with sponsors holding assets longer and facing growing pressure to return capital. Abundant private capital supported valuations but increased leverage and operating pressure, laying the groundwork for potentially more distressed and restructuring led M&A to come in 2026.
2026 Outlook for the M&A Market
The 2026 M&A market is projected to be more active than it was in 2025, although potentially uneven across sectors. Our panel expects that middle market deal volume will rise, distress driven deals will increase, and preparation will separate winners from “wait and see” sellers. There were forecasts of a “K” shaped curve of deal activity in 2026, with certain sectors (e.g., data center infrastructure, AI, GLP-1 impact, etc.) predicted to show significant activity and other sectors (e.g., consumer, food and beverage, etc.) predicted to stagnate somewhat. Additionally, fund managers have not deployed their committed capital at a typical pace, creating a backlog of undeployed capital that should be another catalyst for increased deal flow in 2026.
Private equity funds are holding a lot of assets past their traditional timelines, as managers have delayed liquidity events over the past few years, hoping to increase the valuation and performance of their portfolio companies. Continuation vehicles are increasingly falling out of favor with LPs; and as a result, in 2026, fund managers will feel significant pressure to exit positions and return liquidity to their investors. Panelists noted that it may be challenging to sell underperforming assets, so PE firms may have to consider exiting better performing assets (which they would prefer to continue to hold for another 12–24 months) in order to create liquidity for investors.
Demographic shifts (with aging owners/operators who have been through a lot of fatiguing ups and downs since the emergence of COVID in 2020) will likely be pushing owners (who very much want to retire) into the market even if valuations aren’t completely maximized. Sellers are no longer waiting for the “perfect time” and our panel predicted that the “bid-ask” spread between buyer and sellers will continue to close. Founder-led and multi-generational companies also continue to be an area where private equity firms can find quality businesses, provided they spend the time to build the right relationships with the families in order to ensure that their business and their employees will be in good hands.
The geopolitical and financial uncertainty from 2025 will remain. A new, multi-polar world is beginning to take shape and traditional alliances and economic partnerships are stressed. Tariff pressure is real across all industries, and foreign companies are considering whether to acquire US-based companies to get inside the tariff wall.
As for capital markets transactions, traditional IPOs for West Coast companies are being pushed out to the second half of 2026, while on the East Coast, almost all capital markets transactions are being structured as SPACs. Unenticing prices in traditional capital markets may drive companies that would typically exit via IPO toward an M&A transaction with a strategic or large private equity firm.
Private Credit
The panel had diverging opinions on the future of private credit. It was noted that private credit has increased competition with traditional lenders, squeezing the rate spread between traditional loans and private credit (all while traditional lenders themselves are creating their own private credit products). Others observed that major banks are seeing clients rotate back from their ventures in the private credit fund world. Regardless, major sponsors like Stone Peak and Blackstone have moved aggressively into this space, recently acquiring several lower-middle-market private credit funds. How these recent moves by these big private equity players will shake out for the future of the middle-market and lower middle-market remains to be seen.
Artificial Intelligence and Infrastructure
AI infrastructure is a red-hot area of investment, particularly for data center construction and fiber optic companies. However, experts disagree on the ripeness of AI technology, debating whether we are still in the infancy of the AI age or if the industry will peak in 2026 and 2027.
Some on our panel felt that the edge is where the real opportunity lies. While Big Tech pours billions into massive data centers, panelists argued the economics favor edge computing near end-users. Hyperscalers are crowding out enterprise access, and the smart money is on inference at the edge.
That said, others pointed out that structural impediments limit AI infrastructure opportunities. Permitting constraints, freshwater scarcity, and utilities unprepared for 120 MW requests make many regions (including the Northeast) a “no-go” for AI data centers. Not all markets are created equal for tech infrastructure. This bolsters the case for edge inference as referenced above.
Furthermore, AI will indisputably create efficiency and productivity gains, but the degree to which the workforce will be affected, and when, is unclear. For example, in healthcare, most AI deployments to date have shown no measurable efficiency gains, yet the financial services and legal industries are seeing tangible impacts.
Next Hot Topics
Join us on April 16th for our next half-day Hot Topics event, which will focus on the food and beverage industry.