In an uneven, uncertain market, discipline overcomes disruption

If we zoom out to examine the macroeconomic picture, John Micklitsch, CFA, CAIA, president of Ancora, sees a market that began the year with a lot of positive momentum. There was lower-trending inflation, the first full year of tax benefits from 2025’s Big Beautiful Bill passage, a deregulatory outlook and strong corporate earnings, solid credit markets and the expectation of lower interest rates given leadership change at the Federal Reserve. All of that, he says, was a good setup for M&A.

But the outbreak of war with Iran has inserted uncertainty into the equation, with higher energy prices resurrecting inflation concerns and putting lower interest rates on hold, he says. In addition, tariffs remain a source of uncertainty for both buyers and sellers following the Supreme Court’s decision to end their use in their current form. But even though the waters may be choppy, Micklitsch sees continued opportunity for those who can navigate them.

“In the end, deals that need to get done should be able to get done,” he says. “There is always a price or creative structuring solution that can be built into deals, which allows transactions to clear. Where there is a will, there is a way.”

The Northeast Ohio dealmakers we spoke with offered a similar take: deals can be made, but not for every company in every sector. Factors such as moody policy shifts, geopolitical static and the deepening impact of AI have led to an unevenness in the M&A market. Here’s what they have to say about the state of the market today, and their expectations for how the deal year will finish out.

Macro factors

As a buyer of manufacturing companies, Chip Weinberg, managing partner of Weinberg Capital Group, says tariff rates are top of mind, as they directly affect input costs and margin stability. While companies can attempt to offset these pressures through pricing, he says not all have the necessary leverage — and even those that do often face prolonged negotiation cycles with large customers.

According to Jonathan Ives, managing director at SCG Partners, today’s M&A environment is improved relative to this time last year when the tariffs were first announced. Still, he’s got his eye on geopolitical events, including the wars in Iran and Ukraine, as energy and fertilizer prices affect the firm’s route-based landscaping company.

“If the energy markets stabilize near term, we see the market continuing to be robust,” he says.

In lower middle-market service companies, he says a significant factor is the aging of the population, which continues to drive baby boomer liquidity events.

“Older owners are electing to sell rather than pass the business to the next generation of the family,” he says.

And because its default field services company watches the drivers of mortgage default and foreclosure, including mortgage rates, home sales, labor participation rate and unemployment, Ives says he hopes to see more Fed interest rate relief later this year.

Cheryl Strom, partner, origination, at The Riverside Company, says though interest rates are always top of mind — Fed rate cuts

provide an accelerant in the dealmaking world — deal flow is improving, confidence is returning, and she expects more dealmaking in 2026 by sellers who have held on longer to a company than planned, either waiting for a higher price or for a rebound in performance.

“We expect that in 2026, more of these sellers conclude now is the right time,” Strom says.

She’s also paying close attention to AI and its impact.

“It’s important to understand the impact on business services firms and on software companies, whether replacing labor or introducing new disruptions,” she says. “When it’s difficult to forecast future performance, there can be a slowdown in dealmaking, so I’m watching the predictability factor closely.”

Kate Faust, partner, business development, at Rockwood Equity Partners, has the view that today’s M&A market is selective and quality-driven.

“Our deal volume is up year-over-year, but competition is concentrated around the best businesses,” Faust says. “Everything else is facing more time and scrutiny in process. With larger sponsor-owned deals slower to come to market, the lower middle market continues to be where we’re seeing the most consistent opportunity.”

For Bob Girton, managing partner of August Grace Advisory, this might be the best structural setup for dealmaking in a decade, “and most people are going to waste it.”

With $1.2 trillion in global private equity dry powder, arguably the largest wave of corporate divestitures in specialty chemicals and advanced materials in a generation, half of PE-backed chemical platforms held beyond their original investment horizon, and founders and family owners looking for succession, he says it’s a strong deal environment.

“But the M&A mood hasn’t caught up to the math,” Girton says. “And who could blame them. Tariffs. A war that shut down the Strait of Hormuz. An oil shock. A helium shortage. AI disruption. So, the room is full of smart people writing memos about why they can’t act. We’ve all been through enough cycles to know that this is arguably exactly when the best deals get done, not because the conditions are comfortable, but because your competition is on the sidelines waiting.”

Deals require more than money

For sellers, Melissa Gundling D’Elia, vice president of Heartland Growth Partners, says well-positioned businesses are achieving strong outcomes.

“Companies with strong management teams, solid financial performance, good data visibility and exposure to favorable end markets are seeing competitive processes,” D’Elia says. “Despite headlines around private credit, there remains significant private equity capital available, supporting a range of deal structures.”

On the buy side, she says the opportunity set is expanding.

“Demographic trends — particularly succession and ownership transitions — are bringing more businesses to market,” D’Elia says. “Buyers who can offer a credible path for continuity, including preserving culture and supporting management, are well-positioned to differentiate themselves.”

Ives says buyers that have a focused investment thesis — size, geography, industry — are benefiting as they can show differentiation in competitive processes. AI has made research much easier and helped to facilitate outreach to both intermediaries and directly to sellers. Buyers have also seen financing be more abundant from both traditional banks and private credit providers.

Similarly, Strom says buyers who have deep industry specializations can outperform generalist buyers.

“Industry specialization helps in three ways: you talk the seller’s language, you can move faster, and you can value businesses more richly by understanding the upside opportunity more clearly,” Strom says.

The deal supply pipeline is the best Girton says he’s seen. He says the largest chemical and materials companies in the world are systematically dismantling themselves. Across life sciences and advanced manufacturing, regulatory pressure to reduce dependence on Chinese supply chains is creating a new category of deal flow. Pharma companies are building domestic API and CDMO capacity because the combination of tariff threats and legislative action has made China-dependent manufacturing untenable. In defense and advanced materials, a proposed $1.5 trillion defense budget and accelerating reshoring of critical materials are creating demand signals with five-to-10-year visibility.

“The key qualifier across all of this: capital alone doesn’t win these assets,” Girton says. “Operating credibility does. The buyers winning carve-outs know what it takes to renegotiate complex contracts, rebuild an ERP system that was running on the seller’s SAP instance, and hire an effective team before the transition service agreement expires. This is not a market where you write a check and figure it out later.”

The battle with uncertainty

Among the challenges for sellers, according to Weinberg, is uncertainty.

“One of the key drivers of a strong valuation is the ability to present a clear, credible path to stable future growth and margins,” he says. “In today’s environment, however, uncertainty around factors such as the cost of capital, labor availability and tariff exposure makes forecasting more challenging for both buyers and sellers.”

Sellers, Ives says, have had to deal with the impacts of rising prices over the past few years because of COVID funding overhang, wars, fiscal and monetary policy, tariffs and limited skilled labor. He says this has impacted costs as well as demand for goods and services as the market has adjusted. Sellers also may suffer from lack of succession planning when the time is right to sell, especially owner/managers who face key leader risk.

D’Elia says macroeconomic uncertainty is making it more difficult to clearly articulate and defend forward growth.

“In industrial markets, especially, buyers are focused on backlog quality and revenue visibility, and gaps in either can create friction in a process,” she says.

The biggest challenge for sellers, Girton says, is the gap between where sellers think they should trade and where the market actually is.

“There are business owners and fund managers sitting on assets they believe are worth 12 to 14 times EBITDA because that’s where the market was three-plus years ago,” Girton says. “The market has recalibrated. In the institutional market, the PE deal median has compressed to about 12 times, down from nearly 14 in 2024. Commodity chemicals trade below seven times, yet the companies in strong demand still command 14+ times. Half of all deals trade below the median, and if the commodity-exposed businesses are closing at or below seven times, the dispersion of outcomes has widened dramatically. For many of us in the smaller and general industrial market, that means transactions are closing well below the benchmarks you’re reading about in the press and banker charts.”

For buyers, Ives says they’re facing challenges in intense competition for high-quality deals.

“Multiples have risen across many industries relative to prior cycles,” he says. “Buyers need to distinguish themselves from their competition. Also, once a platform is established, finding high quality add-on acquisitions can be challenging as the market for those smaller companies has become highly competitive as well. Buyers that have operational expertise to drive efficiencies, margin enhancement and growth will continue to win in this environment.”

When it comes to deal obstacles in general, Micklitsch says AI can be viewed as both a positive and a negative in the current environment.

“It depends on the business and what angle you are approaching it from,” Micklitsch says. “One buyer may see a potential company and think AI could be a driver of greater margin and efficiency. Another buyer may see a company potentially in the crosshairs of AI-related disruption that would not have even been a concern a year or two ago. Moats and competitive advantages are being rapidly re-underwritten in the fast-changing world of AI. I expect businesses that stay close to their customers, listen and adapt to what they are telling them — all hallmarks of well-managed companies — will do fine, but there’s little doubt AI is changing the calculus for many buyers and sellers.”

Smooth sailing ahead

Looking through to the end of the year, Weinberg says he’s optimistic about how things will play out in the M&A space.

“We will soon move past the uncertainty tied to the current geopolitical conflicts, and the new Federal Reserve Chair is likely to start lowering interest rates,” he says.

Strom expects a year of steady, gradual improvement rather than a sudden surge.

“Deal volume in the smaller end of the middle market will tick up, and quality will vary, providing opportunities for investors seeking operational improvement plays,” she says. “The firms that finish 2026 with strong results will be those that were disciplined buyers, active operators, and who had the patience to build the right relationships and invest in industry specialized resources.”

D’Elia anticipates continued momentum for high-quality assets, with steady deal flow and competitive processes.

“Activity may remain uneven across sectors, but available capital and buyer demand should support a constructive M&A environment through year-end,” she says.

Girton says the deal year will finish stronger than the mood right now suggests, but it’s a conviction game, not a volume game.

“The structural forces, dry powder pressure, carve-out supply, LP impatience don’t stop because of a war or a tariff headline,” he says. “They build. I think this supply chain shock in the Middle East takes longer to clean up than most people expect, so perhaps we’re not really hitting our stride until Q4. We take a summer and early fall to digest the implications and consequences and, in some cases, rebuild infrastructure. I’d call it a flat-to-down year on volume, but a building year on conviction and pipeline quality.”

With an eye towards how the deal year might wrap up, Micklitsch says there are some big IPOs planned for 2026, with the most notable being Elon Musk’s SpaceX, followed by AI players OpenAI and Anthropic, potentially coming to market.

“To the degree those deals get done, and the punch bowl remains out, it may signal an open season of sorts that ripples throughout the rest of the M&A landscape, providing cover for deals large and small,” he says. “The counterpoint would be that if they get postponed or do not get done, it could signal less overall risk appetite for deals — something to watch and keep on the radar.”

View from the early stage: AI’s unshakable impact

Looking at the early stages, Hardik Desai, managing partner, investing, at JumpStart Ventures, says AI has fundamentally changed how companies across sectors are built and how investors underwrite risk.

“What we’re seeing very clearly is a renewed emphasis on the entrepreneurial moat — the durable competitive advantage that protects a business from rivals,” Desai says. “At the earliest stages, the founder is the moat. Their lived experience, industry insight and proximity to the problem matter more than ever, particularly in a world where AI has compressed development timelines and lowered technical barriers. Founders who bring deep domain expertise — and who can translate that into defensible advantages through data, workflow integration, network effects or hardware — continue to raise capital and scale, even in a cautious market. What doesn’t work as well anymore are undifferentiated software stories or vague platform narratives.”

Jeffrey Stern, principal at The O.H.I.O. Fund, says he’d characterize entrepreneurialism today by heightened opportunity and heightened urgency.

“AI is the greatest technological leverage most founders have ever had access to,” Stern says. “What used to require millions of dollars, large teams and years to reach market can now be done with far less capital, fewer people and dramatically less time. The tools are no longer the limiting reagent. A new frontier has been unlocked at the intersection of technology and the physical world. And with that, there’s a renewed sense that many of the most important opportunities today reside there — in energy, logistics, manufacturing, industrial capacity, agriculture and biology.”

On the flip side, Desai says the same forces that lower barriers to entry also make sustainable differentiation harder. In the AI era, building a durable moat — particularly in pure software — requires more intentionality, deeper customer understanding and stronger execution.

Additionally, he says capital at the early stage is still scarce, especially in regions like Northeast Ohio. And beyond funding, one of the biggest constraints is access to early customers.

“There’s a persistent gap in corporate engagement — companies willing to pilot new solutions, partner with startups or provide structured feedback,” Desai says. “That slows learning cycles and makes it harder for founders to validate their model and reduce investor risk.”

Despite the challenges, Desai says this is still an exciting time to be an early-stage investor.

“The quality and ambition of founders remains high, and AI has expanded the surface area of investable ideas across software, health care, advanced manufacturing and defense-adjacent technologies,” he says. “Investors who are disciplined, founder-centric and regionally engaged can still have an outsized impact — particularly by helping companies move faster from idea to customer validation. In Northeast Ohio, we’re seeing the kind of founder quality and market opportunity that makes that investment compelling — for the

region and for returns.”

Stern says another factor benefiting investors is that we’re living through the emergence of technologies that may genuinely reshape the economy.

“Moments like this create generational opportunity,” Stern says. “AI is becoming a new layer of economic infrastructure that will change how work gets done, how companies are built and what industries matter.”

The challenge, he says, is that transformative technologies and good investments are not the same thing.

“History is full of innovations that changed the world while still leading to bubbles, overbuilding and disappointing returns for many investors,” he says. “AI may be one of the most important technologies of our time and still be an area where excitement leads to overpaying; excitement and overpaying aren’t mutually exclusive.”

Looking ahead, Stern expects ephemeralization will continue to unfold.

“This is the core idea that technological progress allows us to do more and more with less and less,” Stern says. “In practice, that means less capital, less labor, less time and less friction required to create meaningful output. AI is proving to be the most consequential recent driver of that trend. For entrepreneurs, that means the frontier of what small teams can build will keep expanding. For investors, it means old assumptions about scale, cost structures and defensibility will keep getting challenged. 2026 will continue to reward those who best understand the exponential rate at which the underlying curve is accelerating.” ●