Middle Market M&A Valuations Index

Middle Market M&A Valuations Ease, Market Players Retain Confidence in a Turnaround in 2025

Capstone Partners’ annual Middle Market M&A Valuations Index examines EBITDA purchase multiples for middle market businesses. Leveraging market research and Capstone’s proprietary data, we seek to provide business owners and market participants greater transparency into the pricing dynamics of completed middle market merger and acquisition (M&A) sale processes.

Middle Market M&A Valuations Remained Heavily Reliant on High-Quality Assets as Buyers Demonstrate Selectiveness

After facing valuation pressure in 2023, middle market M&A activity in 2024 showed signs of stabilization. While equity markets largely shrugged off the rapid interest rate hikes last year, dealmaking remained constrained by high financing costs, uncertain cash flow projections, and a cautious private equity buyer pool. As a result, average middle market M&A valuations declined to 9.4x EV/EBITDA in 2024, compared to 9.6x in 2023 and 9.9x in 2022. The median EBITDA multiple also dropped for the fifth consecutive year, reflecting a continued narrowing pool of competitive bids. Despite this challenging valuation environment, several industries demonstrated resilience. Agriculture, Business Services, Consumer, Energy, Financial Technology & Services, Healthcare, and Industrial Technology sectors saw year-over-year (YOY) improvements in average EBITDA purchase multiples, suggesting selective strength in certain sectors.

Buyers remained highly selective in 2024, with high-quality assets, particularly for services-focused areas, continuing to draw strong M&A competition. The share of 2024 deals closing at 10.0x EBITDA or higher rebounded, rising 56.3% after a steep decline from 2022 to 2023 (-181.3%). Businesses providing essential or specialized services—ranging from healthcare to financial technology—served as hot-spots, attracting strong buyer interest. This was evident in both specialized technical and professional services verticals. Concurrently, deal sizes trended higher, as the average enterprise value of targets increased from $112.5 million in 2023 to $166.8 million in 2024, with further expansion poised for 2025. Deal size dispersion widened across lower middle market ($10-$100 million), core middle market ($100-$250 million), and upper middle market ($250-$500 million) transactions. Lower middle market deals accounted for 40% of transactions with disclosed enterprise values, while upper middle market deals followed closely at 36%. This was a sharp shift from 2023, when just 6.3% of deals were in the upper middle market and 56.3% were in the lower middle market indicating that buyers, seeing improving economic conditions, have shifted their focus from smaller, easily digestible acquisitions to larger, synergistic ones. Despite this, companies remain under significant cost pressures. Proposed tariffs are beginning to take effect, and with inflation persisting, the Federal Reserve has held interest rates steady, further constraining financing costs.

In 2024, the average gross margin among sold middle market businesses rose to 41.3%, compared to 32.3% in 2023. Heightened interest rates persisted as the cost of servicing debt, or refinancing debt, remained high, with companies demonstrating lower YOY average net debt ratios (0.4x net debt/EBITDA in 2024 versus 1.8x in 2023). The deterioration of operating income to cover interest expense witnessed in 2023 began to rebound in 2024 as middle market targets fortified balance sheets with the interest coverage ratio rising from 3.7x in 2023 to 4.3x EBIT/Interest Expense in 2024 but remained below 2022’s median of 5.8x.

We are in the third year of an abnormally long M&A downcycle for private businesses, with market corrections generally lasting 12 to 24 months. This indicates that the market is overdue for a rebound in activity. Capstone has tracked several datasets that indicate the market is turning–including a reentrance of private equity platform acquisitions, which rose 4.7% YOY in 2024 and marked the first uptick since 2021. The M&A market will inevitably bounce back, and the improving macroeconomic environment paired with increasing pressure for private equity to deploy investor capital may be the catalysts needed to drive increased deal flow.

Middle Market M&A Valuation Trends by Industry

The report includes M&A volume, valuation multiples, and trends for 12 key industries where Capstone Partners maintains designated teams with deep sector expertise:

• Aerospace, Defense, Government & Security
• Agriculture
• Building Products & Construction Services
• Business Services
• Consumer
• Energy, Power & Infrastructure
• FinTech & Services
• Healthcare
• Industrials
• Industrial Technology
• Technology, Media & Telecom
• Transportation, Logistics & Supply Chain

Capstone’s Outlook for 2025

The U.S. has endured a structurally higher interest rate environment since 2020 to combat elevated inflation, which challenged more than half (59.2%) of middle market business owners in 2024, according to feedback from Capstone’s 2024 Middle Market Business Owners Survey. The share of CEOs negatively affected by heightened inflation has remained relatively unchanged compared to 2023 (58.9%), demonstrating the longstanding impacts on the middle market. While the Federal Reserve’s 100 basis point interest rate cut in the final four months of 2024 will likely provide some relief on borrowing costs, business owners may not see the direct impacts until further cuts are implemented, and inflation closes in on the Federal Reserve’s target of 2%.

Many business owners have turned to the capital markets to prompt growth, ensure financial stability, and secure personal liquidity amid economic turbulence. Of note, 44.1% of CEOs surveyed in 2024 completed at least one capital markets transaction over the last 12 months. The lion’s share (28.7%) of business owners surveyed raised equity capital, followed by debt capital (18.6%). Private equity firms have continued to engage with middle market business owners to explore buyout opportunities, most often contacting companies with scale.

Looking ahead to the next 12 months, capital investment and performance improvement support are slated to play a critical role in CEO’s operational initiatives. Nearly half (49.5%) of business owners plan to execute growth strategies over the next year, favoring organic growth measures. M&A opportunities have remained available for middle market participants. However, the share of CEOs planning an M&A transaction declined YOY, with many opting for a minority stake equity investment.

Middle Market M&A Valuations Index – Report Download

Complete the form below to request the full publication, including:

• A breakdown of three-year average middle market M&A valuations by industry.
• Discussion of middle market M&A transaction volume on an industry level.
• Commentary on the operating performance of target companies sold in 2024 compared to prior years.

Want to find out what your company could sell for?

Our industry coverage spans several verticals across the middle market, each comprising multiple subsectors. If you are an owner or investor of a private middle market company, we invite you to contact us today to speak to a specialist in your space and receive an informal business valuation, advice on a timeline to sell or recapitalize, and actionable steps you can take to help maximize shareholder value.