Buying a company comes down to price and capital. In Axial’s survey of 79 lower middle market dealmakers, 57% named valuation expectations as the leading reason deals failed to close in the first half of 2026, up from 28% for deals that failed in 2025. Most still expect activity to hold up: 87% see M&A staying steady or rising.
Fundraising is concentrating. PitchBook expects US private equity to raise less than $300 billion in 2026, the first time below that level since 2020, with money moving to larger funds even as middle-market deal count rose 24.1% in Q3. For operators buying a company, Stanford’s search fund data shows the payoff and the odds: a 33.9% aggregate IRR, and about half of the funds launched in 2021 to 2024 have acquired a company.
Background
Why Dealmakers Say Deals Fail
Valuation expectations
57%28%Timing and process fatigue
16%8%Diligence findings
10%25%Macroeconomic uncertainty
9%21%Financing constraints
8%18%
Share of 79 surveyed Axial members naming each as the single biggest reason deals failed to close in the first half of 2026, against deals that failed in 2025. Axial calls the results directional, not representative of the whole lower middle market.
Market Perspectives
What the Latest Data Shows
Dealmakers point to price. Fundraising is concentrating in larger funds.
Industry Report
Lower Middle Market 2H Outlook: Valuations, Deal Activity & Market Trends
Axial surveyed 79 members on the buy side and sell side. Valuation expectations were the leading reason deals failed to close in 1H 2026 (57%, from 28% for 2025 deals), and timing and process fatigue doubled from 8% to 16%. 64% expect multiples to stay stable in 2H.
Axial · Aug 2026
Market Perspective
Q3 2026 US PE Breakdown
PitchBook reports that deal activity improved in Q3, mostly in the middle market, and that exits rebounded. Fundraising did not: it is on pace to fall below $300 billion for the first time since 2020, leaving more managers competing for a smaller share. PitchBook’s middle market report puts Q3 deal count up 24.1% from Q2, above 1,000 deals for the first time since Q1 2024, and average middle-market fund size above $1 billion in 2026, up from $800 million in 2025.
PitchBook · Oct 2026
Research
Search Funds Keep Offering a Proven Path to Ownership
As of December 31, 2025, the search funds Stanford tracks had an aggregate IRR of 33.9% and a 4.75x ROI. Since 1996, 58% have acquired a company, typically after about 20 months; about half of funds launched in 2021 to 2024 have. The median purchase price in 2024 and 2025 was $16 million. Stanford has tracked more than 850 core search funds in the United States and Canada.
Stanford GSB · Jul 2026
From HalBar
The Numbers Have to Work. So Does the Person Running It.
“From the beginning, we evaluate both the business and the person who will lead it. The company still has to meet the investment criteria. The valuation, structure, risks, and growth opportunity all matter. So does the operator who will be responsible for the business after the close.”
HalBar Partners · LinkedIn · Oct 2026
Read on LinkedIn →One Question
Where the Equity Comes From
If you were buying a company next year, where would most of the equity come from?
Responses are anonymous and will be compiled in HalBar’s year-end survey of the industry.
