This Week’s Signal
Deal volume is not the constraint — conviction is.
Across the lower middle market, capital remains available — but buyers are becoming more selective about where and how it’s actually deployed. Recent transactions reflect a consistent preference for operational clarity, repeatable revenue, and low integration risk over ambitious growth narratives.
Market Signals
Sub-$10M professional services deals continue to transact more reliably than larger platform acquisitions
Buyers are underwriting to near-term cash yield and transition risk, with little patience for unclear leadership succession
Earn-ins and phased ownership transfers are increasingly favored over traditional earn-outs
Regulated and compliance-oriented service businesses remain a primary area of buyer interest
Some buyers are increasingly pairing acquisition strategies with real estate or development-oriented investments to provide LPs with clearer return profiles while waiting for higher-conviction operating deals
Latest Industry Analysis
Professional services remain the most resilient segment of the lower middle market. Accounting, advisory, environmental, and compliance-focused firms continue to benefit from predictable demand and fragmentation. Buyers are increasingly differentiating between firms with institutionalized delivery models and those still dependent on founder-driven relationships.
Valuation expectations appear to be stabilizing, though sharper discounts are being applied to businesses lacking documented processes or second-layer management.
In one recent advisory firm process, multiple buyers passed on an otherwise attractive asset due to the absence of a second-in-command, despite the asset having stable margins and long-standing clients.
By contrast, a similarly sized firm with modest growth but a clear leadership bench moved through diligence efficiently, even at a lower headline multiple.
Insight: Leadership continuity is now a gating factor.
Notable Transactions
A regional CPA firm acquired a specialty tax practice to expand advisory capabilities and retain high-value clients.
A PE-backed IT services platform added a compliance-focused managed services provider to strengthen long-term client retention.
A founder-owned environmental consulting firm was acquired by a strategic buyer seeking regulatory expertise and geographic density.
Roll-Up Watch
Accounting and advisory roll-ups are prioritizing metro-level density over national expansion.
Environmental and compliance services are emerging as quiet consolidation candidates due to regulatory tailwinds.
IT services platforms are shifting their acquisition strategies toward security, governance, and risk management capabilities.
Roll-up operators are deliberately slowing the acquisition pace to focus on integration discipline and operational standardization.
Alerts From the Deal Desk
We’re seeing fewer transactions break over headline price and more stall over execution risk. Businesses with clean financials, defined leadership transition plans, and repeatable service delivery models are moving through diligence efficiently. Those without are encountering longer timelines, increased scrutiny, or post-LOI re-trades.
The market is still transacting, but only where risk is clearly understood and managed.
Solutions From the Deal Desk
Bridging the Valuation Gap With Contingent Standby Seller Notes
Valuation gaps remain common in the current market. In many processes, buyers are anchored to disciplined multiples while sellers — often advised off prior-cycle benchmarks — are seeking one to two turns higher or a fixed headline number.
The most consistent outcomes we’re seeing involve contingent, full-standby seller notes, rather than forced price concessions.
In these structures, a portion of the seller’s consideration is subordinated and contingent on post-close performance, allowing:
Buyers to protect downside risk and maintain capital discipline
Sellers to preserve upside participation if performance holds
Both parties need to align around execution rather than optimism
This structure continues to clear deals that would otherwise stall on price.