The Lower Middle Market: Why Smaller Deals are Making a Big Difference

Press Release

The Lower Middle Market Difference

When most people think of mergers and acquisitions (“M&A”), they immediately think of the billion-dollar deals grabbing headlines. But in the world of investment banking, the lower middle market (transactions valued between $10 million and $250 million), overwhelmingly contributes to the highest volume of successful outcomes as well as some of the most compelling M&A opportunities for both buyers and sellers.

In our current market environment where high interest rates and uncertainty stall big-ticket deals, the nimble lower middle market continues to produce successful exists and is the engine keeping investor returns humming.

PE Exit Strategies Under Pressure

Higher interest rates and ongoing macroeconomic uncertainty have made private equity ("PE”) platform investment exits far more challenging. In Q1 2025, global PE exit activity plunged to its lowest level in two years, as volatile markets and credit-market headwinds delayed or derailed sales and IPOs. Elevated borrowing costs have eroded leverage multiples, reducing the attractiveness of debt-financed buyouts and making it harder for larger funds as well as the smaller funds seeking to sell to them – to achieve target returns.

This “go-back-to-basics” moment demands that PE sponsors rethink exit timing and structures. Many firms are turning to continuation vehicles or stapled secondary transactions to provide liquidity, but these stop-gap measures underscore the fundamental challenge: when the cost of capital rises, platform exit opportunities contract.

Lower Middle Market: A Resilient Segment

By contrast, the lower middle market is poised for a strong year. The main driver of this is the fact that PE funds, in lieu of a platform exit, must keep delivering value to investors through strategic add-on acquisitions – and the fragmented nature of this segment provides ample targets. Agility and niche-market focus allow middle-market sponsors to pursue bolt-on deals that meaningfully boost cash flows and portfolio company scale.

Lower middle market deals were a major driver of middle-market M&A in 2024, representing over 90 percent of add-on investments and underpinning strong published returns. Likewise, middle-market buyout funds not only increased deal count in 2024 but also saw rising capital deployment – evidence that investors still back serial acquirers in the lower middle market space.

Why It Matters

For M&A advisors and business owners considering a sale, understanding this bifurcation is crucial in determining appropriate deal timing, financing structures, and exit pathways. Overall, the decision to sell or purchase a business is multi-faceted and one of the most important decisions of a business owner’s life. The lower middle market is poised to remain a vibrant segment of M&A activity for the remainder of 2025 and it’s essential that business owners leverage the experience of a trusted M&A professional to ensure the transaction is best positioned to align with your objectives.

For more information, contact either Ely Friedman, Founder & Managing Director (859-707-7840 / ely@truceca.com) or Ryan Berning, Vice President (513-614-4046 / ryan@truceca.com).

About Truce Capital Advisors

Truce Capital Advisors is a leading, fully independent investment bank offering a full spectrum of advisory services to business owners. At Truce, we are experts in advising on any potential change of ownership, specifically: i) selling privately-owned or family-owned businesses, ii) assisting buyers in executing their acquisition growth strategies, and iii) providing strategic advisory services. Transaction execution is the hallmark of our firm – we are known for our execution excellence, shareholder education, and rigorous strategic approach for each client and each situation.