| Key Takeaway: Lower middle market deal volume fell sharply in 2025, yet valuation multiples remained strong. Thirty years of data suggests that economic headlines, deal activity, and business valuations often move independently. For many owners, the greater risk may not be selling during uncertainty. It may be waiting until both earnings and multiples move against them. |
Many business owners assume strong valuations depend on a booming economy and an active transaction market. Recent lower middle market data tells a different story. Transaction volume fell 41% from its 2021 peak, yet average purchase price multiples remained around 7.2x.
Most business owners would expect fewer deals to mean lower valuations. The data suggests otherwise. Even as transaction activity slowed, buyers continued paying strong prices for quality businesses.
That disconnect is one of several findings from IAG’s review of 30 years of lower middle market activity spanning 122 quarters. The analysis found that economic headlines, deal volume, and business valuations often move independently, creating opportunities that many owners overlook.
For owners considering a business sale, the question is not simply whether the economy looks strong. It is whether buyers remain active, capital remains available, and quality businesses are still being rewarded. Many owners begin by reviewing resources for selling your business before evaluating their readiness for market.
To understand why today’s market looks different, you first need to separate the economy from the deal market.
Why Today’s Market Is More Selective Than Weak
The 297 completed lower middle market transactions recorded in 2025 marked one of the lowest activity levels since 2017. On volume alone, the market looks slower. But pricing tells a different story.
Average purchase price multiples remained around 7.2x despite the drop in completed deals. That points to a market where capital has not disappeared. Instead, buyers have become more selective about which businesses deserve premium pricing.
This is an important distinction for sellers. Low volume does not automatically mean weak valuations. It can also mean fewer sellers, tighter buyer standards, and stronger competition for clean, well-prepared businesses.
Buyers are still moving, but they are moving carefully. Businesses with strong earnings quality, reliable management, customer diversity, and clear growth drivers can still attract strong interest. Businesses with uncertainty around earnings, customer concentration, or documentation are more likely to face delays, lower offers, or retrading.
The first lesson is simple: capital is available, but it is disciplined. Today’s market is selective, not closed.
Key Facts From 30 Years of Lower Middle Market Data
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The Economy and the Deal Market Often Tell Different Stories
IAG’s 30-year analysis found only a 0.51 correlation between the macro economy and the lower middle market deal environment. That suggests the two are related, but not tightly connected.
The two markets also occupied different condition zones 46% of the time. In other words, economic conditions and deal market conditions often sent different signals during the same period.
| Event | Economy Score | Deal Market Score |
|---|---|---|
| 2009 Financial Crisis | 15 | 40 |
| COVID Q1 | 43 | 73 |
| 2022 Rate Shock | 53 | 70 |
These examples show why headlines can mislead business owners. A weak or uncertain economy does not always translate into a weak transaction market.
Buyers price businesses based on cost of capital, competitive tension, earnings quality, growth potential, and available acquisition opportunities. The broader economy matters, but it is not the only factor. That is why owners should understand what to know before selling your business before using economic headlines as the main reason to wait.
Why Waiting for a Better Economy Often Doesn’t Work
Many owners delay a business sale because they believe a stronger economy will produce a better outcome. The challenge is that the economy rarely moves in a straight line. Over the past 30 years, it has cycled through expansions, recessions, recoveries, inflation shocks, and periods of uncertainty.
For sellers, that creates a difficult problem. Waiting for conditions to improve may sound prudent, but there is no guarantee the next phase of the cycle will be materially better than the current one. Meanwhile, business performance, buyer demand, management depth, and industry conditions can all change.
The years spent waiting do not come back. A business that is attractive today may face different challenges several years from now, regardless of what the broader economy is doing.
The Deal Market Has Become More Resilient
While the economy has continued to cycle, the lower middle market has become more resilient. According to IAG’s analysis, every major downturn over the last 30 years has bottomed at a higher level than the one before it.
The deal market reached lows of 18 in the late 1990s, 28 during the dot-com and 9/11 period, 38 during the 2008 financial crisis, and 41 during COVID. The current cycle’s low sits at 59. Financing markets have matured, private capital has expanded, and buyer competition has become more consistent.
That trend is encouraging, but resilience should not be confused with protection. A stronger market floor does not guarantee a stronger outcome for every seller. Buyers still discount businesses with customer concentration, inconsistent earnings, weak management depth, or unresolved diligence concerns.
The market can remain healthy while individual businesses lose value. That distinction shifts the conversation away from predicting the economy and toward preparing the business itself.
The Real Cost of Waiting
A resilient deal market does not eliminate valuation risk for an individual owner. If earnings fall at the same time valuation multiples compress, business value can decline quickly.
Consider a business generating $5 million in EBITDA at a 7.0x multiple. That business would be worth approximately $35 million. In a mild downturn, EBITDA falls to $4.5 million and the multiple compresses to 5.0x, reducing value to $22.5 million. In a more serious downturn, EBITDA falls to $3.75 million and the multiple compresses to 4.0x, reducing value to $15 million.
That is a $12.5 million decline in the mild scenario and a $20 million decline in the serious scenario. The lesson is not that every owner should sell immediately. It is that waiting carries risk, especially when both earnings and multiples can move against the business at the same time.
FAQs About Selling a Business in Today’s Market
Why are business valuations holding up despite lower deal volume?
Does a stronger economy always lead to a higher business sale price?
What is the biggest risk of waiting to sell a business?
What should owners focus on before a business sale?
Focus on What You Can Control
Thirty years of lower middle market data points to a simple conclusion: no owner can control the economy, interest rates, or market cycles. What owners can control is preparation. Strong financial reporting, diversified customers, capable management teams, and a well-organized sale process often have a greater impact on outcomes than trying to predict the perfect time to sell.
If you are considering a business sale in the next one to five years, now is the time to evaluate your readiness. Understanding your company’s value drivers, identifying potential risks, and preparing for buyer scrutiny can help position your business for a stronger outcome regardless of where the economy moves next.
IAG helps business owners assess market readiness, understand valuation drivers, and navigate the business sale process with confidence. Contact our team to discuss your goals and explore the options available for your business.
