CIBC US Middle Market Investment Banking’s Ron Miller is joined by Alex Eskra and Jim Olson to discuss full-year 2025 M&A trends, including transaction volumes, private equity activity, valuations, and credit markets. Alex covers broader market signals, while Jim discusses trends within the consumer market. The outlook for 2026 is cautiously optimistic, but dealmakers are contending with a conflict in Iran, weaker jobs data, and rising oil prices.
Ron Miller: Welcome to The Monitor by CIBC's US Middle Market Investment Banking Group, a podcast series focusing on key insights, strategies and trends in the US Middle Market landscape. I'm your host, Ron Miller.
In today's episode, I'm joined by my teammates, Alex Eskra, Executive Director and Jim Olson, Managing Director. Jim leads our consumer sector. Alex will cover more. Actually, let me go back to what you had. In today's episode, I'm joined by Alex Eskra, Executive Director at CIBC, US Middle Market Investment Banking and Jim Olson, Managing Director. Jim leads our consumer sector coverage and Alex will cover the broader M&A picture. He's going to talk about transaction volumes, valuations, and financing conditions. Jim will weigh in on how each of those dynamics as playing out specifically in the consumer sector, which had a notable 2025, and is at an interesting inflection point heading into the balance of 2026. Alex and Jim, thanks for joining me today.
Alex Eskra
Thanks for having us, Ron.
Jim Olson
Great to be here.
Ron Miller
Let's turn to transaction volumes. Alex, let's start with the big picture. How did the lower middle market deal volumes perform in 2025?
Alex Eskra
Ron, the short answer is continued softness, but I would say there's an important bifurcation in the market. So according to Baird, US lower middle market transactions, defined as under 500 million of enterprise value, declined about 6 % year over year in 2025. Market commentary, I'd say consistently was characterized as a choppy year. So cautious sellers, elongated timelines. And the broad-based volume recovery that a lot of people anticipated at the start of 2025 simply didn't materialize. Most people are familiar with the tariff volatility after the early 2025 trade war announcements, which was the dominant headwind in 2025, characterized with softer manufacturing data, cooling labor market, added seller hesitation which particularly impacted the smaller, more cyclical businesses. On the other hand, large cap M&A moved in the opposite direction. PE take private deal value reached 255 billion, which was up 67 % year over year, and the second highest on record. So while fewer companies were being taken private, the ones that were were transacting at materially larger valuations. For example, there was a $55 billion LBO of Electronic Arts being the headline example for 2025.
Ron Miller
Alex, that large cap strength and that middle market weakness seems to be a recurring theme of the last year. Are there any signs that the lower end of the market is going to catch up in 2026?
Alex Eskra
It's a good question, Ron. I mean, I'd say our team is sort of cautiously optimistic here. With the early developments of this year, Iran conflict, oil-driven inflation, mixed jobs data, those have all reinforced some of that seller hesitation. But the setup for gradual recovery in the second half is there. Private equity sponsors are sitting on near record dry powder. LPs continue to pressure private equity firms for distributions and extended hold periods in private equity portfolios. So I think the long and the short of it is if tariff policy stabilizes, financing costs continue to ease, there is a pent up supply that's ready to go to market that could start moving.
Ron Miller
Jim, how has transaction volume specifically in the consumer sector fared?
Jim Olson
Yeah, consumer was one of the hardest hit sectors in 2025. According to PitchBook, transaction volume in consumer declined roughly 22 percent compared to 2024, falling from approximately 1060 deals to 830 deals. Unlike prior cycles, which were isolated to certain categories, the contraction was felt across consumer, including across consumer, including food and beverage.
Tariff uncertainty hit consumers particularly hard. After Liberation Day, consumer confidence dropped sharply and remained depressed through Q3. Even businesses sourcing and selling domestically weren't immune when overall consumer spending contracted. Consumer confidence improved by the end of the summer, but too many deals were disrupted, resulting in the full year numbers being significantly down.
Ron Miller
What's your read on consumer outlook for the rest of 2026?
Jim Olson
Yeah, Ron, we anticipate a pickup in 2026, especially the second half of the year as the soft Q2 of 2025 falls out of the LTM financial results and as clarity improves on tariffs and the Iran conflict, which are the two biggest variables right now. The university of Michigan consumer confidence index fell to 55.5 in March, which was one of the lowest readings in the last three months reflecting the household anxiety around the conflict. If gas prices retreat back to pre-conflict levels and the macroeconomic picture stabilizes, the back half of the year should be more active.
Ron Miller
Let's turn to valuations. Alex, given the challenges that we've just discussed, what are you seeing on the valuation front?
Alex Eskra
Yeah, it's a good question, Ron. So in spite all of this, valuations have been remarkably stable. So according to GF Data, the average EBITDA multiple for lower middle market businesses held at 7.2 times in 2025, which is consistent with the last two years. Interestingly enough, it's also half a turn above GF Data's pre-COVID historical average of 6.7 times.
So despite a challenging environment and lower volumes, multiples have not declined. I would say that that's largely attributed to quality and the filter effect that comes with that. So it's primarily those higher quality companies that are completing processes, which is naturally skewing those observed multiples upward.
Ron Miller
Are we also seeing any meaningful differences between industry sectors?
Alex Eskra
Yeah, when you drill down, mean, the short answer is yes. Health care services is sort of at the top of the heap at 8 and half times, which is up from 7.7 times in 2024, largely driven by a continued sponsor appetite for scaled platforms in provider services. Business services also ticked up to about 7 and a half times, tying its highest level on record.
Then on the other hand, manufacturing is down, compressed to 6.6 times, down from 7 times. And again, that's been weighed down by tariff-related input costs uncertainty, softer consumer demand that Jim mentioned. And I'd say the overarching theme is that investors are paying up for asset-light recurring revenue businesses and applying discounts to more cyclical or trade-exposed ones.
Ron Miller
Jim, how do you see valuations in the consumer sector? Are you seeing a little more stability?
Jim Olson
Yeah, broadly consistent with the overall market run. For quality consumer assets, buyers are still willing to pay full multiples. Defensible brands with strong unit economics and pricing power continue to demand premium valuations. Where we're seeing compression is companies experiencing soft demand and tariff exposure, given buyers more leverage in negotiations. The decline in the number of consumer transactions has helped keep valuation strong. For buyers that attend management presentations, if they like the team and the businesses financially performing well, I see buyers more aggressively rounding up their final bids to get a deal done.
Ron Miller
Let's turn to the debt markets. Alex, let's talk a little more about the financing environment. What are lenders telling you?
Alex Eskra
The financing picture is stable, but kind of the theme of this podcast - nuanced. So according to GF data, total debt multiples in the lower middle market averaged 3.6 times, which is modestly below the 3.7 times long-term historical average and below the peak of four times in 2021.
Both bank and non-bank lenders are active, but I'd say overall underwriting standards now emphasize a greater focus on credit quality, cash flow visibility over maximizing leverage. It's a more disciplined framework, one that's I'd say largely healthier for the market over a full cycle.
Ron Miller
We've seen some volatility and frankly in the last few weeks some real headwinds in the loan market. Alex, What do make of this?
Alex Eskra
Spot on. So the start to the year was really strong in January. Leveraged loan activity, however, pulled back pretty sharply in February. New issuance dropped to its lowest level since the tariff announcements last spring. High yield bond issuance hit a five-year high that same month, suggesting a temporary rotation from loans towards bonds as lenders digested AI-related volatility for software loans, the Iran conflict, and overall just a weaker jobs report than what was expected. However, I'd say within our team, we view this as more of a pause or a hiccup rather than a structural shift. The right credits, they're still getting done. Again, to Jim's earlier point of energy prices stabilize, there's more clarity around the Fed's path. The loan market should reopen more broadly in the second half.
Ron Miller
Jim, are you seeing the financing environment creating opportunities or challenges in consumer deals?
Jim Olson
For the right consumer asset, financing is available and competitive. Lenders are focused on cash flow predictability and margin stability, while more cyclical or tariff exposed businesses face scrutiny and tighter structures. We're advising clients to be thoughtful about their leverage profiles heading into a process, particularly given how closely lenders are scrutinizing supply chain risks right now.
Ron Miller
I want to turn to a bit of a deeper dive on the consumer sector since we have you, Jim. How are your clients navigating this environment and what advice are you giving business owners who may be thinking about a sale process in 2026?
Jim Olson
For business owners who are contemplating a sale, the questions we are asking focus on tariffs, supply chains, and commodity volatility. If those answers are clear and favorable, this is actually a good time to be in the market. If those answers are not clear, buyers will still be interested if those companies have an ability to pass along price increases to customers without significantly destroying demand. Buyer appetite for quality consumer assets is real. And sponsors with dry powder are actively looking to deploy capital. For businesses navigating near-term headwinds, we are advising clients to wait for clarity, even if it means a few more months or quarters, as a delayed process typically produces a much better outcome than a process that stalls in due diligence.
Ron Miller
I hear that caution, but are there any subsectors where you're seeing the most activity or buyer interest right now?
Jim Olson
Yeah, food and beverage continues to be an active area. Resilient demand, strong brands, predictable cash flows check the boxes that both strategic and financial buyers are prioritizing. According to Kroll, of the food and beverage transactions announced in 2025, strategic buyers, including private equity backed companies, drove roughly 80 % of the deal flow. We expect food and beverage activity to increase in 2026, especially as financial buyers become more active again. In addition to food and beverage, we are also seeing growing activity in consumer healthcare, household products, and consumer services.
Ron Miller
Jim, what are you thinking about the companies that are on the other side of that equation? More discretionary businesses, the ones that are facing tariffs, that have had a tougher time. What should they be thinking about?
Jim Olson
For discretionary businesses, preparation matters more than ever right now. Buyers of consumer businesses are being selective, and the valuation gap between well-positioned assets and average ones has widened. The companies that will transact successfully are the ones that have used the past couple of years to improve their operations, address any supply chain vulnerabilities, and build a clear narrative around their path forward.
Ron Miller
Last question for you, Jim. What's your single biggest watch item for consumer M&A in 2026?
Jim Olson
It's definitely gas prices and the Iran conflict without question. Consumer confidence is the biggest demand driver and sustained elevated gas prices will have an outsized negative effect on discretionary spending and the overall sentiment. If that, if the situation in the middle East escalates, it will have a real and direct impact on deal volume for the balance of the year. Conversely, we are optimistic that a near term resolution would be a meaningful catalyst to a strong consumer-led M&A market the second half of the year.
Ron Miller
Alex and Jim, thanks for a great conversation. Let me summarize a few of the key themes that I heard from the talk. Lower middle market deal volume declined as tariff volatility, elongated timelines and macro uncertainty weighed on activity for smaller companies and more cyclical businesses. Despite the lower volume, valuations held steady at about 7.2 times EBITDA for lower middle market transactions.
Reflecting a quality filter in a generally lower volume environment. Healthcare services and business services commanded the highest multiples. The debt markets were disciplined and available at better than 3.6 times total leverage, broadly in line with longer term norms. The early 2026 loan market pullback appears to be temporary, with the back half of the year expected to be more aggressive and have a better macro clarity.
Consumer confidence remains fragile. Tariff policy, resolution and energy price volatility are two key variables that we need to watch for the rest of the year. However, quality consumer assets, particularly in food and beverage, personal care, consumer health, continue to attract strong interest and competitive valuations. And overall, the outlook for lower middle market M&A should improve in the second half of 2026.
Supported by record PE dry powder, LP pressure to deploy capital, and gradually stabilizing political and trade environments. So Alex and Jim, thank you for your time and for a very substantive conversation. The consistent message across the broad market and the consumer is that quality continues to get rewarded. It's the breath of the activity that's still catching up. We look forward to having you both back as the year develops.
Alex Eskra
Thanks, Ron.
Jim Olson
Thanks for having us.
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