A new chapter: Middle market M&A activity expected to gain momentum in 2026
Turbulence and volatility may have ruled the day in 2025, but 2026 is starting with the right ingredients for a potentially strong year of M&A for the middle market — companies with an enterprise value of $100 million to $1 billion. Improved economic fundamentals, the potential for lower interest rates, and a business-friendly regulatory environment are expected to help fuel activity this year — a welcome reprieve.
Middle market companies entered 2025 with optimism fueled by a new pro-business administration in the White House, but economic and political volatility thwarted those hopes. We expect 2026 to be more consistent with expectations; this year is starting with a mix of positive fundamentals, renewing hopes of accelerated deal activity.
Here is a closer look at the headwinds that derailed market activity in 2025, how the market is evolving to deliver new opportunities in 2026, and what middle market business owners should do to take advantage of this potential opening for M&A.
2025 activity falls short of expectations – outside of megadeals
If you are a keen reader of headlines, you might wonder how M&A activity fell short of expectations last year. By dollar volume, the M&A market had a stellar year. Global M&A deal volume totaled $4.8 trillion last year.1 The activity represented an impressive 50% year-over-year increase — but it doesn’t tell the whole story. Megadeals were the primary driver of the activity, with 70 announced deals of $10 billion or more (including four announced deals of $50 billion or more) in 2025. These large deals helped significantly uplift M&A dollar volume overall. So, while the total M&A transaction value set records in 2025, market transaction activity was anemic, and M&A deals for middle market businesses fell flat.
2025 saw 1,289 U.S. middle market deals, compared to 1,279 in 2024. While relatively flat year-over-year, this deal volume represents only half of the 2,469 deals completed in 2021 when middle market M&A was at a historic peak. Likewise, globally, the tremendous total deal value of $4.8 trillion seen in 2025 still remained significantly below the $5.8 trillion in value from 2021.2
The underwhelming performance of 2025 was a direct reflection of the turbulent and uncertain economic environment. Experts on the M&A market, including the KeyBanc Capital Markets (KBCM) team, expected elevated transaction activity in 2025 — and M&A activity did start the year with a promising upswing. A business-friendly regulatory environment coupled with falling interest rates at the end of 2024 set the market up for a strong year. However, activity was quickly derailed on April 2, 2025, when the Trump administration’s aggressive tariff policy was announced, followed by the Fed’s decision to maintain interest rates. It took some time for the market to recover from the tariff shock, but a new normal emerged as lending sources actively sought new assets and macroeconomic activity pointed towards a “soft landing.”
2026 is expected to be an active year for M&A, with large-cap transaction activity continuing and an expected meaningful pickup in middle market activity. While encouraging for sellers and buyers, we see continued buyer cautiousness requiring sellers to reverse diligence business plans and market assessments for successful navigation of buyer due diligence processes.
Randy Paine
President of KeyBanc Capital Markets & Key Institutional Bank
Business-friendly financial policy sets up 2026 for a better M&A year
In 2026, we expect that middle market businesses will get the year that they hoped for in 2025. Economic fundamentals are improving; the trade market has stabilized; and interest rates are expected to decline later in the year. With those headwinds waning, the business-friendly regulatory environment will help fuel middle market M&A activity this year. As the Harvard Law School Forum on Corporate Governance notes, the Federal Trade Commission and the Department of Justice have returned to a historically typical approach to analyzing and enforcing antitrust laws without taking an anti-consolidation mindset. This also includes the return of early termination for HSR approvals, which will increase speed to close.
These market dynamics should also create a positive climate for private equity leveraged buyouts. These factors aid an M&A-friendly banking environment with strong debt capital availability that supports private equity activity, particularly given the pent-up demand in the middle market, where values have been depressed since the 2021 peak.
Furthermore, a strong economy will also help drive more M&A activity, particularly among middle market businesses that are more acutely exposed to changes in economic fluctuations. With the November midterm elections looming, the current administration will likely be highly focused on supporting pro-growth economic policies.
While the uncertainty and market volatility of 2025 may have constrained deal activity, 2026 has the potential for more increased M&A activity.
Improved financial conditions are contributing to an optimistic 2026 outlook from the middle market. Private equity dry powder remains near record highs, north of $1 trillion, according to the EY report. Lower middle market deal activity has disproportionately impacted the private equity community. There is significant pressure from limited partners to deploy capital despite the challenges the market has seen since 2021. A large backlog of private equity deals could help awaken the middle market and reopen private equity fundraising, which has been difficult in an environment where capital has not been returned to limited partners. Increased access to debt capital providers will also help to support increased deal volumes in the middle market.
Catching a potentially narrow opportunity
While 2026 has all of the ingredients for an active and healthy year, it could be a brief window. The November midterm elections have the potential to negatively impact the U.S. economy, consumer spending, interest rates, and market confidence. If these factors come to fruition, it could stall economic growth, which would in turn result in negative impact on M&A transaction activity. Middle market businesses that have been examining a potential merger or acquisition may have a limited window to close a deal.
Working closely with a seasoned team is vital to ensuring that a company optimizes the valuation and that the deal makes it through the process. KeyBanc Capital Markets professionals, many of whom have 20-plus years of experience navigating the M&A market, work closely with industry bankers to correctly position the deal in the market. Even through the market turbulence, the team continued to illustrate their aptitude in navigating middle market deals, despite the challenging environment of 2025.
2026 is poised to be a solid year for middle market M&A transactions, and while some headwinds remain, companies are expected to see more opportunities to complete mergers and acquisitions in the next year.
To learn more about our middle market M&A practice
Talk trends, timing, and next steps with Jeff Johnston, Head of Mergers & Acquisitions, KeyBanc Capital Markets. Visit key.com/M&A for recent deals, insights, and industry-focused expertise.
About KeyBanc Capital Markets
KeyBanc Capital Markets is a leading corporate and investment bank providing capital markets and advisory solutions to dynamic companies capitalizing on opportunities in changing industries. Our deep industry expertise, broad capabilities, and unique ideas are seamlessly delivered to companies across the Consumer & Retail, Diversified Industries, Healthcare, Industrial, Oil & Gas, Real Estate, Utilities, Power & Renewables, and Technology verticals. With more than 800 professionals across a national platform, KeyBanc Capital Markets has raised more than $125 billion of capital for their clients and has an award-winning equity research team that provides coverage on over 500 publicly traded companies.
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