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This article was originally featured in Pitchbook's "Q1 2026 US PE Breakdown."
The M&A market is open and active. At Grant Thornton Stax, we are seeing increased deal flow, processes continuing to move forward, and capital remaining available. However, this is not a forgiving environment despite these signals.
Market participants describe the current state as active yet complicated, being shaped by volatility and heightened scrutiny from buyers, as well as asset-specific challenges. While more deals are coming to market, fewer are advancing through investment committees (ICs) without friction. The standard for approval has risen, and skepticism is more pronounced.
For sellers, the implication is that preparation is no longer optional. The ability to clearly articulate a defensible story and support it with evidence is now a decisive factor in getting a deal done.
ICs today are more skeptical than at any point in recent memory. The internal checklist for approving a new platform investment continues expanding with deeper diligence to vet downside risk in addition to growth potential.
In a five-year hold model where multiple expansion is uncertain, early performance carries disproportionate weight. Buyers are highly focused on getting the first two years right and reducing the risk of early underperformance that can derail returns.
Compounding this caution is the reality that the past five years have been an atypical—and potentially misleading—benchmark. Covid disruption, inflation-driven pricing shifts, supply chain shocks, backlog distortions, and tariff-related margin swings have all affected performance. As a result, buyers increasingly require segmented financial views separating pre-Covid results, the surge years of 2021–2022, and the more normalized environment of 2023–2025. This is all to establish a credible baseline rooted in current operating reality and its durability.
Biggest buyer question: “What’s the floor?”
Buyers are no longer underwriting primarily to upside scenarios, but rather underwriting downside and resilience.
ICs are now explicitly modeling multiple downside scenarios, testing not only how quickly earnings can grow, but how far they could fall. The conversation has shifted from growth potential to resilience (if conditions soften).
With limited expectations for multiple expansion, buyers assume that exit multiples may compress modestly, placing greater emphasis on earnings stability and growth. If EBITDA fails to grow meaningfully or declines, achieving return targets becomes challenging.
In practical terms, buyers want answers to three questions:
- How low can earnings realistically decline?
- What happens if demand normalizes or resets again?
- What happens when pricing stabilizes and inflation tailwinds fade?
Establishing a credible floor is now as important as presenting a growth thesis.
Sell-side diligence as a value-creation tool
Market studies
Commercial diligence has evolved beyond static market snapshots. Buyers are less interested in point-in-time growth rates and more on trajectory and durability. Forward-looking analysis must demonstrate where the business is heading, not just where it has been.
Customer exposure analysis is critical, identifying cyclicality, end-market concentration, and sensitivity to macro variables. Equally important is balanced scenario planning. Rather than presenting only an aggressive upside case, sophisticated sellers now outline base, downside, and recession scenarios, demonstrating credibility and command of the narrative.
The goal is to help the next buyer underwrite the future state of the business, not simply validate historical performance.
Quality of Earnings (QoE) / Financial diligence
On the financial side, credibility hinges on thoughtfully normalizing the disruption of recent years. This requires clearly separating:
- True volume growth
- Inflation-driven price increases
- Temporary backlog releases
- Tariff-related cost and margin shifts
QoE analysis now focuses on quantifying operational improvements and pro forma earnings power, rather than relying on blended historical averages.
Preparation timing matters. The strongest processes begin sell-side preparation well before launch, allowing time to refine adjustments and align advisors around a cohesive narrative.
Tariffs, pricing, and the proof requirement
In the current environment, buyers rarely credit projected price increases or margin expansion unless already demonstrated. Credibility comes from evidence, ideally at the transaction level. Buyers want to see:
- Historical price changes tied to volume
- Proof volumes held after increases
- Clear margin flow-through across the value chain
Data quality has become a key differentiator. Companies without robust KPIs or transaction-level reporting face steeper diligence friction as buyers test pricing power and margin durability.
A central question remains: when pricing stabilizes, who retains the incremental margins? Clear positioning within the value chain is critical.
Valuation disconnect & no easy exits
Despite improving deal flow, valuation gaps persist. Founders and sponsors often anchor to peak-multiple years, while buyers underwrite in a market shaped by multiple compression and, in some cases, flat EBITDA across 2024–2025.
Sponsors who entered at elevated multiples may now require significant EBITDA growth just to meet return targets. As a result, straightforward exits are mostly limited to businesses with strong secular growth or strategic demand, while more cyclical stories face a narrower buyer pool.
What drives successful outcomes?
Certain themes consistently differentiate successful processes:
- Exposure to clear secular tailwinds and non-cyclical demand
- A credible, defensible base case
- Management teams able to articulate the business with depth
- Early advisor alignment around a unified narrative
Sectors tied to durable infrastructure, data centers, water, and other structurally supported markets continue to attract stronger underwriting conviction. For others, sustained interest requires sharper positioning and stronger proof points.
The buyer funnel remains active, but selectivity is high.
The North Star framework
Successful sellers increasingly begin with a clear narrative, then work backward to define:
- How the market should be framed
- What financial adjustments are defensible
- What proof points must be assembled in advance
Growth strategies built on future products or unproven capabilities are harder to underwrite today. ICs are placing a greater emphasis on evidence and clarity.
In many cases, taking additional time before launch improves outcomes, focus and coherence matter more than ever.
Conclusion
The M&A market is functioning and deals are getting done, but success increasingly favors investors with preparation, precision, and proof.
ICs are more analytical and discerning than ever, underwriting downside scenarios as rigorously as upside. Historical performance must be unpacked, pricing power proven, and earnings durability defended.
In this market, the difference between interest and execution often comes down to one factor: whether the story is backed by data that withstands scrutiny.
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