M&A Market Outlook: Mid-Market Activity Surges

The headline M&A statistics for 2025 masked a striking divergence between deal segments. While total announced deal value declined approximately 12% year-over-year as mega-deals remained scarce — constrained by elevated financing costs and antitrust scrutiny — the mid-market segment (enterprise values of $50M to $500M) saw volume increase by 18%, driven by technology sector consolidation, healthcare services roll-ups, and private equity portfolio optimisation. This bifurcation reflects structural differences in how deals at different size points are financed and approved, and it has important implications for sellers and buyers planning transactions in 2026.

The valuation gap between seller expectations and buyer willingness to pay remains the primary deal impediment in most negotiations, and earnout structures have become the dominant mechanism for bridging it. In INNOVATIVE NATIONAL TAX & UPKEEP INTERNATIONAL TALLY PTY LTD's deal activity during 2025, earnout provisions were included in approximately 62% of transactions — up from 44% in 2023. The design of these provisions has become increasingly sophisticated, with buyers structuring performance milestones around EBITDA targets, revenue run-rates, customer retention metrics, and in technology deals, product development milestones. Sellers should enter negotiations with a clear understanding of the post-close integration conditions under which milestones will be measured, as disputes over earnout calculations have become the most common source of post-closing litigation.

Due diligence patterns have evolved significantly in the current environment. Buyers are conducting more extensive quality-of-earnings analyses — particularly focused on normalisation adjustments, recurring revenue classification, and the sustainability of margins achieved during periods of supply chain disruption. Cybersecurity due diligence has moved from a checkbox exercise to a substantive workstream that in some cases takes longer than financial due diligence. And in industries with significant ESG exposure, acquirers are conducting pre-close climate risk assessments to identify potential stranded asset risks before they are embedded in the acquisition price.

Looking ahead to the second half of 2026, the conditions for a mid-market M&A recovery are broadly in place. Interest rate stabilisation has improved leveraged buyout economics, strategic acquirers have rebuilt balance sheet capacity, and private equity sponsors are facing mounting pressure to realise returns from ageing portfolio investments. INNOVATIVE NATIONAL TAX & UPKEEP INTERNATIONAL TALLY PTY LTD expects deal flow to increase approximately 20-25% in the mid-market segment relative to 2025 levels, with business services, industrial technology, and specialty healthcare services as the most active sectors.