Lower Mid-Market Buyer Trends 2025
- Brandon Chicotsky
- Jan 3
- 13 min read
Updated: Jan 6
In 2025, the lower mid-market experienced a major shift, with fewer deals, tighter financing, and evolving buyer behaviors. Key trends include:
Deal Slowdown: April 2025 saw only 555 U.S. deals, the lowest since 2009. By September, deal volume was down 27% year-over-year.
Interest Rates: Rates dropped from 8.5% to 7.5%, slightly easing borrowing costs but still higher compared to 2020–2021 levels.
Valuation Multiples: Deals in the $5M–$50M range saw multiples rise to 6.0x EBITDA in late 2024, while smaller deals ($2M–$5M) dropped to 3.6x EBITDA.
Buyer Behavior: Private equity, search funds, and family offices are prioritizing businesses with clean financials, recurring revenue, and strong leadership teams.
Sector Focus: Healthcare, technology, and service industries are leading targets, driven by AI advancements and demographic trends.
Seller Financing: Over 75% of transactions now include seller financing, often adding a 15% valuation premium.
For sellers, preparation is critical. Clean financials, clear AI documentation, and willingness to offer flexible financing can help bridge valuation gaps and attract buyers. With $2.6 trillion in private equity funds available, the market is competitive but selective.
What's Driving Buyer Behavior in 2025
The lower mid-market in 2025 is being shaped by three key forces: higher interest rates, sector-specific opportunities fueled by AI and demographic trends, and increased caution due to economic uncertainty. Buyers are becoming more selective about where they choose to invest.
How Inflation and Interest Rates Affect Buying Decisions
Interest rates are reshaping how deals are evaluated. For instance, the prime rate fell from 8.5% to 7.5% in early 2025, saving about $10,000 annually for every $1 million financed [1]. While this dip provides some relief, borrowing costs remain significantly higher than the near-zero rates seen in 2020–2021.
This disparity has created a gap between sellers and buyers when it comes to valuation expectations. Sellers often hold onto the high multiples seen in 2021–2022, while buyers are pushing for discounts to offset their increased financing costs. In fact, valuation multiples for deals in the $5 million to $50 million range rose to 6.0x in Q4 2024, compared to 5.3x in Q4 2023 [6].
As a result, buyers are focusing on businesses with strong cash flow, reliable recurring revenue, and clean financial records. Private equity firms, in particular, are taking a more cautious approach, concentrating on improving the value of their current portfolio companies rather than pursuing expensive new acquisitions. Similarly, strategic buyers are opting for smaller, bolt-on acquisitions rather than large-scale platform deals. These smaller acquisitions require less debt and are generally easier to integrate [4].
Another noticeable shift is the decline in earnouts. In 2023, 10% of deals in this market included earnouts, but by 2024, that figure had dropped to just 3% [6]. This decline reflects growing buyer confidence and better access to capital, with many preferring upfront payments for quality businesses.
Amid these financing challenges, buyers are increasingly targeting industries with stable cash flows and growth potential.
Which Industries Buyers Are Targeting
Economic and financing pressures are reshaping the sectors buyers are prioritizing. Investors are zeroing in on industries with steady performance, strong growth trends, or opportunities tied to AI advancements.
Healthcare continues to be a leading focus. Deal values in this sector jumped 150% year-over-year in November 2025 [9], driven by aging populations and innovations in life sciences. Areas like diagnostic platforms, imaging software, and care delivery assets are particularly appealing. As IIB Corp noted:
"Healthcare has remained robust... reflecting the defensive, non-cyclical nature of many healthcare segments, as well as strong secular drivers." [3]
Technology is also seeing rapid growth. Tech deals valued above $100 million reached approximately $63 billion in November 2025 - a 145.4% increase from the same time in 2024 [9]. AI continues to play a significant role, contributing to roughly 60% of U.S. GDP growth in 2025 [8]. For example, Google announced plans for a $32 billion acquisition of Wiz to enhance its cybersecurity and AI capabilities in early 2025 [11].
Service-oriented sectors, including IT, professional services, and business services, are drawing interest due to their asset-light models and steady cash flows [11]. Meanwhile, industrials and manufacturing companies tied to AI infrastructure, such as data centers, are also gaining traction. A notable example is Constellation Energy’s $26.6 billion acquisition of Calpine in early 2025, highlighting the appeal of this space [11].
Sector performance further illustrates these trends. Communication services posted a 33% price return in 2025, while technology returned 24.4%. In contrast, consumer staples and real estate saw more modest gains of 1.9% and 0.6%, respectively [8].
How Buyers Are Managing Economic Uncertainty
These valuation and financing dynamics are prompting buyers to adapt their strategies in the face of economic uncertainty. Global M&A activity dropped nearly 19% in Q1 2025 [3], but buyers are finding creative ways to navigate the challenges.
Deal structuring has become more flexible. Buyers are using tools like earnouts, seller financing, and staggered payments to close valuation gaps without overextending themselves [12]. Smaller, bolt-on acquisitions are also becoming the norm since they require less capital and are easier to finance and integrate [4].
Supply chain and tariff concerns are influencing decisions as well. Buyers are diversifying production to countries with lower tariffs and leveraging country-of-origin rules to protect their margins. As CBIZ explained, "Tariffs are being managed, not avoided" [7]. In some cases, domestic acquisitions are being prioritized to minimize supply chain risks and tariff-related costs [3].
Operational independence is another key consideration. Buyers are paying close attention to how reliant a business is on its founder. Companies with strong leadership teams in place are considered lower risk [12]. Interestingly, only 32% of small businesses currently use a CRM system, which raises concerns about scalability [12].
AI is also a major factor in decision-making. A striking 95% of buyers say AI plays a role in their evaluations, and 58% are engaging with sellers earlier to assess AI implementation [5]. This shift has led to due diligence processes starting six to seven weeks earlier than in previous years [5].
With $2.6 trillion in private equity dry powder and an average portfolio hold period of 6.4 years - the longest since 2012 - buyers have both the resources and the patience to wait for the right opportunities. They are navigating the market carefully, balancing caution with strategic ambition.
Capital Markets and M&A Activity in 2025
The lower mid-market experienced a tough start in early 2025. In April, deal counts dropped to just 555 transactions - the lowest monthly total since May 2009[3]. By the end of September, deal volume was down 27% compared to the same period in 2024[14]. This sharp decline marked a period of recalibration, setting the stage for notable shifts in transaction dynamics.
As the year progressed, the market began to stabilize. With $2.6 trillion in dry powder available, competition for high-quality assets intensified. This, paired with declining interest rates, pushed average purchase price multiples upward - from 6.9x trailing 12-month adjusted EBITDA in Q2 to 7.5x in Q3 2025[14]. However, sellers hoping for the inflated multiples of 2021 were met with tempered expectations. Bob Dunn, Managing Director at GF Data, summed it up well:
"We're seeing buyers remain disciplined in a market still adjusting to higher financing costs and varied deal quality."[14]
Rising Transaction Numbers
Although the year started on shaky ground, deal activity picked up momentum as months went by. Add-on acquisitions now account for 75% of buyouts, largely because they require less debt and are easier to integrate. This trend has been fueled by a wave of retiring baby boomer owners - 60% of current business owners - who plan to exit within the next four years[16][2][1].
For instance, Viking Mergers & Acquisitions completed 19 deals worth $115 million in Q4 2024 alone, crediting a notable uptick in inquiries after the U.S. election[1]. Meanwhile, younger buyers are stepping up. Millennials and Gen Z now make up 45% of search funders and 58% of serial entrepreneurs[2].
Lower Valuations and Higher Financing Costs
Shifts in financing have significantly impacted how deals are structured. With banks tightening lending standards, buyers are increasingly turning to private credit and direct lending[3]. For add-on transactions in the $1 million to $5 million range, total debt coverage averaged 5.7x EBITDA. However, for new platform deals in the same range, lenders capped debt coverage at 2.3x EBITDA due to heightened caution[15].
Private equity firms are holding onto their portfolio companies longer, with the average hold period stretching to 6.4 years in Q1 2025 - the longest since 2012[4]. Valuation multiples for deals in the $5 million to $50 million range climbed to 6.0x EBITDA in Q4 2024, up from 5.3x in Q4 2023[6]. On the other hand, smaller deals in the $2 million to $5 million range saw multiples drop to 3.6x EBITDA, highlighting a clear segmentation in the market[6]. These financing pressures are a key reason buyers are gravitating toward the lower mid-market.
Why Buyers Prefer Lower Mid-Market Deals
With higher financing costs and tighter lending standards, buyers are increasingly drawn to the lower mid-market. These deals require less debt leverage, making them less vulnerable to interest rate changes[3]. Many buyers can finance these transactions using existing credit lines or revolvers, avoiding the need for complex debt structures[15].
Strategic buyers are also favoring smaller, accretive add-ons over larger platform acquisitions to better manage cost uncertainties caused by trade policies and tariffs[4]. Lower mid-market companies - those with closing payments of $50 million or less - have accounted for over 40% of all M&A transactions in recent years[13]. Their domestic focus offers a layer of protection from global supply chain disruptions[16]. As Sellside Group aptly put it:
"This isn't a buyer's market or a seller's market. It's a filtering market."[4]
In this environment, businesses with clean financials and stable operations are the ones achieving premium outcomes.
What Sellers Should Do in Response to 2025 Trends
The 2025 market is tough on unprepared business owners. Many first-time sellers enter negotiations without proper preparation, which often leads to lost value or even failed deals. Scott Bushkie, Managing Partner at Cornerstone Business Services, sums it up perfectly:
"Engaging experienced advisors early isn't a luxury; it's a critical safeguard to protect your financial future and ensure a successful transition." [17]
Getting Your Business Valued and Positioned
Preparation is the key to achieving the best possible outcomes when selling your business. As market conditions evolve, obtaining a certified business valuation is essential. This step ensures your expectations align with what buyers are looking for. Buyers today are scrutinizing operational efficiency and financial transparency like never before. If your financial records are messy or your leadership team lacks stability, don’t expect top-dollar offers[4].
Forget casual estimates based on outdated valuation multiples. For example, EBITDA multiples in the $2 million to $5 million range dropped to 3.6x in Q4 2024, down from 4.0x the previous year[6]. Additionally, outdated financials now result in offers that are roughly 85% of what they used to be[3].
AI is another critical focus area. With 58% of buyers engaging early to assess AI capabilities, you need to provide detailed documentation on how AI is integrated into your products or operations[5]. Buyers want to see its impact on pricing, security, and data management. Vague claims won’t cut it. Keep in mind that 95% of winning vendors are already on buyers’ shortlists from the beginning[5]. If you haven’t built a strong online presence and established credibility in your industry, you may already be at a disadvantage.
Handling Common Buyer Concerns
Economic uncertainty and tighter financing options are making buyers more cautious. With stricter bank lending, seller financing has become the norm, appearing in over 75% of small and lower-middle-market transactions[18]. Businesses offering seller notes often secure a valuation premium of about 15% over all-cash deals[18]. In 2025, seller-note yields average around 8%, typically ranging between 6% and 10%[18]. If you’re open to providing a seller note, make sure to include safeguards like personal guarantees, working capital thresholds, and quarterly financial reporting requirements[18].
Buyers are also focusing on sustainable margins[10][19]. Highlight recurring revenue streams and tech-enabled services that reduce risk. For manufacturing businesses, emphasizing U.S.-based production or reshoring benefits can help mitigate concerns about trade volatility[18][19]. Proactive scenario planning is equally important. Prepare models for best- and worst-case scenarios to show how supply chain disruptions or tariffs could affect your business’s performance[11]. With 30% of companies pausing deals in May 2025 due to tariff concerns, offering data-driven insights can help reassure buyers and make your business more appealing[11].
Working with God Bless Retirement
In today’s market, how you position your business matters more than ever. Timing, preparation, and alignment with buyer expectations are critical[4]. Trying to navigate this process alone can be risky. That’s where God Bless Retirement comes in. Specializing in businesses with under $25 million EBITA, they provide services like certified business valuations, buyer sourcing, and confidentiality protection throughout the sale process.
Their team also connects you with CPAs, financial planners, and private equity experts to address operational weaknesses before you hit the market. They’ll help structure deals that bridge valuation gaps and appeal to buyers. With $2.6 trillion in private equity funds waiting to be deployed, well-prepared businesses have a real shot at securing capital[3].
God Bless Retirement offers a confidential, free preliminary valuation and consultation to give you a realistic starting point. From there, their full-service approach taps into their buyer network, handles marketing, and supports you through negotiations until closing. In a market where the median time to close has stretched to 198 days due to stricter due diligence[18], having experienced advisors on your side isn’t just helpful - it’s essential.
Summary of 2025 Buyer Trends and Seller Recommendations
The lower mid-market in 2025 presents a challenging landscape, where buyers are focusing on businesses with operational stability, clean financial records, and recurring revenue streams, rather than those solely emphasizing aggressive growth stories[4]. Despite the availability of $2.6 trillion in private equity funds[3], only businesses meeting these strict criteria are attracting interest. Younger buyers are taking the lead in acquisitions, while Baby Boomers still represent nearly 60% of sellers, driving a generational shift that is reshaping deal terms and expectations[2]. This evolving dynamic highlights the importance of flexible financing and precise valuations.
Seller financing has become a major factor, now appearing in over 75% of transactions and adding a 15% valuation premium for sellers willing to include it[18]. Buyers are also starting their evaluations earlier - about 6–7 weeks ahead of previous timelines - to assess how businesses are leveraging AI in operations, pricing strategies, and security measures[5]. With 95% of successful buyers shortlisting businesses on the first day[5], sellers must prioritize having clean financials and well-documented AI capabilities.
The average time to close a deal has extended to 198 days, with valuation multiples tightening. Businesses with $2–5 million EBITDA are seeing multiples of 3.6x, while larger deals are stabilizing at 6.0x multiples[6]. Retirement continues to be the primary driver for exits, accounting for 56% of lower mid-market transactions[6]. However, only 20% of the 2.3 million Baby Boomer-owned businesses currently transitioning have a formal succession plan in place[18]. These conditions make thorough preparation a necessity.
To navigate this market, sellers should focus on the following:
Obtain a certified valuation to establish a realistic baseline.
Clean up financial records and address operational inefficiencies to close valuation gaps.
Be prepared to offer seller financing, including personal guarantees and financial covenants[18].
Clearly document how AI impacts your operations and create scenario models to address risks like tariffs or supply chain disruptions[11].
In a market where buyers are cautious but capital remains available, preparation is key to securing a successful exit.
For additional support, consider partnering with experts like God Bless Retirement (https://godblessretirement.com). Their free, confidential preliminary valuation offers a realistic starting point, and their comprehensive services connect sellers with the right buyers while maintaining confidentiality. With expert guidance, sellers can maximize their exit value and position themselves strategically for success.
FAQs
What are the key changes in lower mid-market buyer behavior for 2025?
In 2025, the dynamics of buyer behavior in the lower mid-market are evolving, driven by the growing influence of younger, tech-savvy decision-makers. Millennials and Gen Z now make up a substantial share of buyers, with nearly half of search-fund investors and more than half of serial entrepreneurs coming from these generations. Additionally, around one-third of corporate buyers are under the age of 45. This shift has brought heightened expectations for AI-driven solutions, prompting buyers to engage with sellers earlier - about six to seven weeks sooner than they did in 2024. Despite this earlier engagement, a striking 95% of buyers arrive at the table with a pre-formed shortlist, having already made critical decisions before their first interaction with a seller.
Economic conditions are also shaping buyer activity this year. While deal volume has slowed in early 2025 due to uncertainty around trade policies, declining interest rates - expected to drop below 7% by late 2025 - are encouraging buyers to pursue larger acquisitions. Private equity firms, holding an estimated $2.5 trillion in available capital, are becoming more selective in their investments and extending hold periods to maximize returns.
For sellers looking to navigate these changes, God Bless Retirement offers brokerage services tailored to meet the demands of today’s marketplace. With certified valuations, a trusted network of advisors, and expertise in connecting with AI-savvy buyers, the firm helps sellers position their businesses effectively in a competitive environment.
Which industries are currently attracting the most interest from buyers in the lower mid-market?
In the U.S. lower mid-market, buyers are zeroing in on three main sectors: B2B companies, B2C businesses, and information technology firms. Among these, B2B companies are leading the charge, accounting for around 40% of all transactions in the third quarter of 2025. This category spans industries like professional services and industrial suppliers. Meanwhile, the B2C and IT sectors are also drawing significant attention, particularly businesses that offer recurring revenue models or tech-enabled services - features that help mitigate risks in today’s uncertain economic environment.
These patterns align with the expertise of God Bless Retirement. Their team specializes in sourcing and valuing lower mid-market businesses with EBITDA under $25 million, focusing on these high-demand industries. They guide buyers through the competitive landscape while maintaining strict confidentiality throughout the process.
What steps can sellers take to make their businesses more attractive to buyers in the lower mid-market?
To appeal to buyers in today’s lower mid-market, sellers need to start with well-prepared and transparent financials. Begin by normalizing EBITDA, cutting out non-recurring expenses, and organizing a clean, audited profit-and-loss statement. This doesn’t just showcase stable earnings - it also makes it easier for lenders to assess financing options, which can help move the deal along faster.
Buyers are particularly interested in businesses that present low-risk opportunities with growth potential. Make sure to emphasize recurring revenue streams, tech-enabled services, and strong customer retention rates. Additionally, having scalable processes, a competent management team, and a clear succession plan in place can make your business more attractive - especially to younger buyers stepping into the market as Baby Boomer owners plan their exits.
For a smoother and more confidential transaction, think about partnering with a specialized broker like God Bless Retirement. They can help with professional valuations, creating a buyer-ready information package, and tapping into a network of experts, such as CPAs and private equity professionals, to ensure the process is seamless from start to finish.
