Commercial Insights

2026 M&A outlook: Cautious optimism for growth ahead

Middle-market mergers and acquisitions activity is likely to rebound in 2026, as conditions look ripe to allow businesses to benefit from pent-up demand.

While economic uncertainty persists, mostly improving macro conditions are expected to accommodate an increase in middle-market mergers and acquisitions (M&A) activity in 2026. While total M&A volume increased in 2025, driven by a surge in megadeals, middle-market M&A volume remained below recent historical levels, as a volatile macroeconomic environment led many market participants to adopt a “wait and see” approach to M&A. However, as conditions evolve, deal volume is likely to grow in the coming months, in the view of BlackArch Partners, a leading middle-market advisory firm and subsidiary of Regions Financial Corporation.

“There is a lot of pent-up demand in the market, and many buyers have significant dry powder that they are anxious to put to work,” said BlackArch Managing Director Andy Wright. “We’re also starting to see some relative stability around key economic factors, as interest rates decline, inflation moderates and some of the tariff-driven volatility subsides. All of this is likely to create a more accommodating M&A environment in 2026.”

The level of activity may vary depending on the industry. Some sectors, such as industrial and professional service providers, have remained active, while others, such as manufacturers and distributors, have generally been more impacted by macroeconomic conditions. Artificial intelligence (AI) is expected to be a catalyst for some M&A activity, as buyers may have a heightened demand for businesses that provide services or products connected to AI or data centers.

Wright says manufacturers and distributors may see a rebound in buying and selling activity. “As we get further away from Liberation Day and manufacturers and distributors are able to better evaluate tariff impacts, they have a better sense of what their normalized financial performance is likely to be on a go-forward basis,” Wright said. “Having that visibility can give owners more confidence in moving forward with a sale process.”

Regardless of sector and potential transaction timing, sellers should start preparing early to be in a position to capitalize on improving market conditions, even if an anticipated transaction is 12-24 months down the road. “Thorough upfront preparation in advance of a sale enhances process efficiency and streamlines buyer due diligence,” Wright said.

Considerations for buyers and sellers

There are several important factors for businesses to keep in mind when evaluating M&A opportunities in 2026.

• Closely monitoring conditions in the sectors in which they operate. “Businesses have to be nimble in this environment and anticipate challenges they might encounter due to potential ongoing changes in trade or economic policy,” Wright said. “While we expect this will be a more favorable year for M&A, inflation, interest rates, labor conditions, tariff policy, geopolitical dynamics and other factors remain fluid, so owners and operators need to remain vigilant and be ready to react swiftly.”
• Understanding price-volume and margin dynamics. It’s important for businesses to understand how they might need to normalize for some things that have already occurred, particularly as it relates to tariff-driven price increases and what this means for price-volume dynamics and margin performance. “Buyers will continue to want to have clear insight into how much revenue growth has been driven by price increases relative to volume trends,” said Wright. “Sellers also need to fully understand how higher input costs and prices have impacted their margins and what normalized margins look like. These have been critical diligence areas since inflation took hold during the pandemic and remain so in today’s tariff-impacted operating environment.”
• Financial reporting capabilities. To be an attractive acquisition target, businesses also need to maintain clear and thorough records. “This applies not only to standard financial reporting, but also to important metrics such as price-volume trends and any sort of nonrecurring or abnormal occurrences that could be positioned as a normalization adjustment to EBITDA (earnings before interest, taxes, depreciation, and amortization),” said Wright.
• Information systems and technology. Having solid financial reporting processes and systems is fundamental for any business, but it becomes even more critical when evaluating M&A opportunities. “Potential sellers may need to consider upgrading to a more sophisticated ERP (enterprise resourcing planning) system to ensure they can provide seamless financial reporting, but they should be mindful of not implementing a new system if it would be too disruptive to operations or financial performance ahead of a sale,” said Wright.
• Artificial intelligence. Leveraging AI to improve performance is top-of-mind for many businesses today, and it may take on added importance for businesses looking for a buyer. “It may be advantageous for potential sellers to evaluate how they can efficiently incorporate AI relatively quickly without spending a lot of money or time, or without implementing something that might disrupt their core business,” Wright said. “Certain buyers will want to see that target companies are leaning in on AI and finding ways to use it effectively.”

Ready to help

BlackArch is a leading middle-market M&A advisor for owner-operators and financial sponsors who have created significant value and are seeking the next step in their business’s evolution. Contact us to discuss how BlackArch can help you take the next step in your business journey.