Middle Market M&A Defies Chaos, Valuations Rise in Turbulent 2025

BOSTON, MA – April 15, 2026 – In a year defined by unprecedented geopolitical shocks and economic whiplash, the U.S. middle market demonstrated remarkable fortitude, with merger and acquisition (M&A) valuations not only holding firm but climbing to new heights. A new report from investment banking firm Capstone Partners reveals that despite a mid-year market seizure, dealmakers adapted with surprising speed, rewriting strategies on the fly and setting the stage for a confident re-acceleration into 2026.

The year 2025 began on a high note, with M&A volume and deal values surging 10.3% and 21.2% year-over-year, respectively, in the first quarter. This initial rally signaled a robust recovery from the pressures of 2024. However, this momentum was abruptly shattered by a single event that sent shockwaves through global commerce. The market's resilience in the face of this disruption, and its subsequent recovery, tells a story of adaptation and strategic recalibration. According to Capstone's 2025 Middle Market M&A Valuations Index, average M&A valuations defied the turbulence, settling at an impressive 9.8x EV/EBITDA for the year, a notable increase from 9.4x in 2024 and 9.0x in 2023.

Navigating the 'Liberation Day' Storm

The pivotal moment of 2025 arrived on April 2, a date now known in financial circles as “Liberation Day.” On that day, the Trump administration announced the most sweeping tariff hikes in nearly a century, including a universal 10% tariff on most imports. The response from buyers and industries reliant on global supply lines was, as the Capstone report notes, “violent and swift.”

Financial markets immediately convulsed. The S&P 500 plunged, consumer confidence cratered to its lowest level since 2022, and the M&A market froze. Deals in progress were suddenly thrown into question, forcing transactions to be repriced, restructured, or abandoned entirely as a chasm opened between buyer and seller expectations. Due diligence timelines, once predictable, stretched into uncertainty as companies struggled to assess the long-term impact on their supply chains and cost structures.

Yet, the paralysis was short-lived. By mid-2025, after the administration tempered some of its tariff escalations, a new equilibrium began to emerge. Having stared into the abyss of geopolitical uncertainty, firms and investors did not retreat but instead began to innovate. M&A evolved from a simple growth tool into a critical instrument for building resilience. Companies pursued acquisitions to nearshore supply chains, enter more stable markets, and consolidate their competitive positions in a world where trade dynamics could no longer be taken for granted.

Private Equity's New Playbook: Less Debt, More Strategy

Perhaps nowhere was this strategic adaptation more evident than in the world of private equity. Historically reliant on financial leverage to generate returns, PE firms in 2025 executed a significant pivot. The most telling statistic from Capstone's report is the dramatic decrease in leverage: average net debt-to-EBITDA ratios in middle market buyouts plummeted from 6.2x in 2024 to just 3.4x in 2025.

This deleveraging was not a sign of weakness but a calculated strategic shift in a higher-cost capital environment. With interest rates making debt more expensive, PE sponsors moved away from financial engineering and leaned more heavily into operational value creation. The “buy-and-build” model, where a PE firm acquires a platform company and grows it through a series of smaller, strategic add-on acquisitions, became the industry’s default operating framework. Add-on deals constituted over 58% of sponsor activity in 2025, demonstrating a clear focus on disciplined, synergistic growth.

This new playbook puts a premium on execution. Sponsors showed a strong preference for platform companies that came equipped with a clear integration roadmap and modern systems ready to absorb future acquisitions seamlessly. Interestingly, even as overall debt levels fell, the burden of interest payments grew heavier. The average interest coverage ratio (EBIT/interest expense) fell sharply from 6.0x to 2.9x, underscoring the impact of higher rates and reinforcing the wisdom of a less-leveraged approach. By relying more on equity and operational improvements, PE firms successfully protected their internal rates of return (IRR) and positioned their portfolio companies for more sustainable, long-term growth.

Pockets of Strength: Where Deals Thrived

While the overall market showed resilience, certain sectors proved to be genuine safe harbors in the storm, posting year-over-year improvements in their average purchase multiples. These industries offered investors a combination of insulation from geopolitical winds and alignment with long-term structural growth trends.

The Aerospace, Defense, Government & Security (ADGS) sector, a natural beneficiary of heightened global tensions, saw robust investor interest. Likewise, the broad and diverse Business Services sector remained attractive as companies sought outside expertise to navigate the complex new operating environment. The Energy sector, perennially sensitive to global events, experienced a surge in activity as volatility created opportunities for well-positioned players.

Technology, Media & Telecom (TMT) also continued its strong run, with investors looking past short-term market jitters to focus on durable trends like digitalization and artificial intelligence. Even Agriculture saw average multiples rise, with high-margin subsectors buoying the industry's overall valuation despite distress in other areas. This flight to quality was evident across the market, as the proportion of deals closing in the highly desirable low-double-digit EBITDA range rebounded to 40.7% of all transactions with disclosed multiples, up from 31.6% in 2024.

A Cautious but Confident Look Toward 2026

As the market enters 2026, the sentiment among dealmakers is one of cautious optimism. The chaos of 2025 served as a trial by fire, forging more resilient companies and more disciplined investors. According to a joint survey by Capstone Partners and IMAP, a majority of M&A advisors (66%) expect transaction multiples to remain stable in the coming year, while a significant portion (27.4%) anticipates they will rise further.

This confidence is built on a solid foundation: healthier corporate balance sheets with less debt, a proven ability to adapt to macro shocks, and a growing backlog of investor demand for high-quality assets. While the “noisy” economic environment of shifting trade policies and persistent geopolitical risks remains a factor, the middle market has demonstrated its capacity to not only survive but thrive. With stabilizing valuations and a renewed focus on strategic growth, the stage appears set for a steady re-acceleration of M&A activity through 2026.