Mid-Year Pulse Check: LMM Dealmakers Weigh in on 2H 2025

As the second half of 2025 begins to unfold, Axial conducted a sentiment survey among ~40 active members. The survey sample reflected a 55% / 45% split between sell-side advisors and financial investors—including private equity firms, independent sponsors, and family offices. All participants are focused on lower middle market transactions and active on the Axial platform. The findings are organized into three sections: insights from buyers, perspectives from M&A advisors, and market trends drawn from all surveyed dealmakers.

Together, the results below reveal a cautiously optimistic tone. Despite persistent macroeconomic uncertainty – from interest rates to global trade dynamics – market participants remain active, adaptable, and committed to closing deals in the back half of the year.

Buyers Remain Largely on Track & Competition Remains High

A clear majority of buyside respondents – 93.3% – reported that they expect to meet their full-year 2025 acquisition targets. Many have already completed at least one or more deals by the mid-year mark, suggesting continued pipeline strength and execution despite challenges like interest rate headwinds and fluctuating seller expectations.

Do you expect to meet your original 2025 acquisition target within the next six months?

Buyers who are holding steady on their 2025 goals point to focus, firm capacity, and market selectivity as key reasons. “We want to stay disciplined and within the bounds of what we can handle,” said Dennis Huang of Polychrome. Lars Vaule of Pilotage Partners added that “seller valuation expectation remains optimistic,” reinforcing the importance of thoughtful underwriting and a patient approach. Even among those who haven’t yet met their targets, there’s confidence that continued momentum in Q3 and Q4 will get them there—supported by more creative financing strategies and a willingness to wait for the right opportunities.

Buyside Outlook on Valuations & Capital Deployment

Have you adjusted your target valuation thresholds for new platform deals in 2025?

81.2% of surveyed buyers reported no change to their target valuation thresholds for new platform deals in 2025, indicating a consistent investment thesis despite market fluctuations. Only a small share have adjusted their thresholds, with 12.5% lowering and 6.2% increasing them.

How willing are you to stretch on valuation for a high-quality asset in 2H 2025?

When it comes to valuation behavior, buyers appear split. 50%  are either “somewhat willing” or “very willing” to stretch on valuation for high-quality assets. Another 38% remain neutral or unwilling — indicating a more cautious posture in assessing premium assets.

Financing & Political Uncertainty Not Stopping Deals

What do you anticipate your top constraint to deploying capital will be in 2H 2025?

More than half of buyers (56.2%) anticipate that limited quality deal flow will be their biggest constraint to deploying capital in the second half of 2025. Valuations and operational risk follow distantly, while concerns like financing conditions and political uncertainty appear to be far less pressing. This is somewhat surprising given the continued headlines around interest rates and trade policy. The results suggest that for most buyers, the core challenge isn’t external turbulence—it’s simply finding the right businesses to invest in.

Buyside Deal Execution in 2025

How would you characterize the relative difficulty of getting deals done so far in 2025 relative to previous years?

More than half of the surveyed buyers reported that getting deals done so far in 2025 has been harder than in previous years, while just 6.2% reported an easier environment. The rest see conditions largely unchanged. But the “harder” sentiment is nuanced — as shown in the quotes below, challenges range from AI-driven valuation uncertainty to increased seller selectivity.

Select Buyer Commentary on 2025 Deal Difficulty

Advisors Expect Activity to Accelerate

Do you expect to win more or fewer client engagements in 2H 2025 compared to 1H 2025?

On the sell-side, 42.1% of surveyed investment bankers and M&A advisors expect to win more client engagements in the second half of the year, while the remaining 57.9% anticipate engagement levels will hold steady. Notably, none foresee a decline. This would suggest a shift in seller sentiment — from cautious observation to selective market re-entry — as more business owners consider taking advantage of continued buyer interest and still-solid valuations.

How would you describe seller sentiment right now?

When asked to characterize seller sentiment, most advisors described it as “opportunistic, but cautious.” While uncertainty around interest rates, geopolitical policy, and broader macroeconomic trends continues to create hesitation, many advisors are also seeing an uptick in deal prep and outreach activity from their clients. Just 10.5% said sellers are eager to sell due to macro uncertainty, and none characterized the sentiment as “very bearish.”

What percentage of deals that initially had a target close date in 1H 2025 ultimately closed?

Responses were evenly split when asked what percentage of deals with a target close in 1H 2025 ultimately made it across the finish line. Roughly a quarter of M&A advisors reported closing 0–25%, 26–50%, or 75%+ of their deals, highlighting the varied nature of deal outcomes in the current market.

Deals Aren’t Dying – They’re Going on Hold

Of the deals that didn’t close as intended, are more dying or going on hold?

Among the deals that didn’t close as intended in the first half of 2025, 52.6% of surveyed advisors said a greater share are being put on hold rather than falling apart entirely. The remaining 47.4% indicated that the proportion of deals going on hold versus dying has stayed about the same as in prior periods. As the responses below highlight, delays or breakdowns are often driven by diligence discoveries, underperformance, SBA changes, and shifting buyer priorities.

What are you seeing as the cause(s) of deals dying or going on hold?

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Are you seeing a growing or shrinking gap between seller valuation expectations and buyer willingness to pay?

Advisors overwhelmingly report that the valuation gap between sellers and buyers has held steady, with 63.1% saying the gap remains stable. Meanwhile, 21.1% believe the gap is growing, and 15.8% say it’s shrinking. The data indicates that while valuation misalignment continues to be a challenge, it isn’t worsening dramatically — and for most, the disconnect appears to have reached a steady state. As Michael Vann of The Vann Group put it, “I don’t see any fundamental changes to valuations; I think there is a state of equilibrium at the moment.”

Macroeconomic & Market Trends

The following section reflects input from both the buyside and sell-side, offering a broader perspective on the macroeconomic forces shaping the 2025 deal environment. From interest rate expectations to valuation outlooks, these responses shed light on how dealmakers are adapting their strategies for the second half of the year.

Do you expect tariffs and global trade policy uncertainty to continue to impact M&A to the same degree as 1H?

Dealmakers are cautiously optimistic about the impact of tariffs and global trade policy on M&A in the second half of 2025. While 37.1% expect the impact to decrease, another 34.3% believe it will persist at the same level. A smaller group is either unsure (17.1%) or anticipates an increase (11.4%). Overall, sentiment points to lingering concerns, but not an escalation.

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Interest Rates: A Manageable Headwind

Have interest rates negatively affected your ability to close deals in 1H 2025?

What is your outlook on interest rate changes?

While 31.4% of dealmakers said interest rates have negatively affected their ability to close a deal in 2025, a majority (54.3%) reported no direct impact. Looking ahead, the outlook skews slightly optimistic: 44.4% expect rates to fall a little, and another 25% believe they’ll hold steady, suggesting that most dealmakers are preparing for a mildly improved—or at least stable—rate environment in the second half of the year.

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Financing Strategies Evolve Under Pressure

What creative or alternative financing strategies have you used due to the current interest rate environment?

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Valuation Multiples Hold Steady

What is your expectation for valuation multiples in 2H 2025 relative to 1H?

Most surveyed dealmakers expect little movement in valuation multiples in the second half of 2025, with two-thirds predicting they will remain stable. A smaller portion is split evenly between expecting a slight increase or decrease, while no respondents foresee dramatic shifts in either direction. The quotes below offer a deeper look at the reasoning behind these views.

What do you think will drive the change in valuations, and why?

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Valuation Pressures: Competing Forces at Play

Which factor is having the greatest upward pressure on valuations right now?

Which factor is having the greatest downward pressure on valuations right now?

Surveyed Axial dealmakers pointed to a clear push and pull between deal-level strength and broader economic concerns when assessing what’s driving valuations. On the upward side, strong buyer competition for quality assets led the way, followed by business performance and seller expectations. Meanwhile, macroeconomic uncertainty was the most commonly cited factor applying downward pressure, along with underwhelming performance and valuation mismatches. The responses suggest a market balancing optimism around high-quality opportunities with caution tied to external volatility.

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Buyer Competition Expected to Hold or Rise

Compared to the first half of 2025, how much buyer competition do you expect to see within deal processes in the second half of the year?

Looking ahead to the second half of 2025, 65.7% expect buyer competition to hold steady, with no significant change from the first half of the year. Notably, 29% anticipate a more competitive environment, while no surveyed dealmakers foresee a drop in competition. This reinforces the notion that demand for quality assets remains strong, even amid market uncertainty.

Final Thoughts

Despite macroeconomic volatility, ongoing valuation friction, and pockets of executional difficulty, sentiment across the lower middle market remains measured and largely resilient. Buyers are staying focused and flexible, while sellers are re-entering the market with a cautious but open mindset. Dealmakers continue to adapt to rate conditions and supply dynamics through creative structuring and selective asset targeting. 

Axial will continue to monitor and publish sentiment data to help members benchmark what’s happening in real time across the deal landscape.