The lower and middle market (LMM) M&A sector is characterized by its dynamic and unpredictable nature, often obscured by distorted narratives. Sensational claims and exaggerated concerns regarding rising interest rates, credit market freezes, declining valuations, extended due diligence, and increased deal failures frequently surface with each economic cycle.

These alarmist statements, prevalent in industry discussions and media, often lack solid evidence. The aim is to position advisors and intermediaries as crucial for navigating market complexities, using urgency and fear to emphasize their expertise.

The Importance of Truth in M&A Transactions

Amid sensational headlines, the significance of truth is essential. Business owners preparing for transactions, particularly in 2025, need a precise grasp of market dynamics. They require insights grounded in empirical data and balanced analysis instead of exaggerated stories. In M&A, having an accurate market perspective is critical for making informed strategic decisions, establishing realistic expectations for valuations and timelines, and negotiating clearly, steering clear of fear-driven tactics.

Addressing Misleading Misconceptions

This white paper tackles misunderstandings within the lower- and middle-market M&A arena. The goal is to debunk myths with clarity grounded in evidence. For instance, although increasing interest rates can impact financing, they do not universally reduce M&A activity. Companies may continue to seek acquisitions to strengthen market positions or boost efficiencies, irrespective of interest rates. Furthermore, the belief that credit markets are entirely frozen is overstated. Even during times of restricted lending, numerous financial institutions still offer capital for well-structured deals, particularly in sectors that are resilient and focused on growth.

1) The Assertion - Interest Rates and Credit Conditions: Mischaracterized Headwinds

RISING INTEREST RATES AND TIGHTER CREDIT ARE UNDERMINING DEALMAKING - THE REALITY

By mid-2025, interest rates are not rising. The U.S. Federal Reserve began cutting rates in late 2024 and has maintained steady policy since, with further easing widely anticipated. Credit conditions remain selective, but financing availability has improved, driven by robust private credit markets and a rebound in leveraged loan issuance.Implication for Sellers: Rates and credit may influence deal structure, but they are not deal-breakers. Sound businesses continue to secure financing. Narratives of 'frozen' capital are misleading.

2) The Assertion - Valuation Gaps: A Sector-Specific, Not Universal, Issue

VALUATION GAPS ARE WIDENING AS SELLERS HOLD ONTO OUTDATED MULTIPLES - THE REALITY

Valuations in 2025 remain highly sector-specific. Healthcare, renewable energy, and technology services sustain strong multiples, while discretionary consumer-facing businesses face compression. Global data shows deal values rising even as overall volumes moderate, signaling that capital is still being deployed toward quality assets.Implication for Sellers: Owners must benchmark against their sector, not generalized market chatter. A 'universal collapse' in valuations is a distortion of reality.

3) The Assertion - Due Diligence: A Necessity, Not a Deal Killer

DILIGENCE IS 'KILLING MOMENTUM' AND DERAILING DEALS - THE REALITY

Typical diligence—quality-of-earnings, compliance, confirmatory checks—spans 4–8 weeks, broadly consistent with historic norms. Sellers can accelerate the process by preparing clean reporting, reconciled KPIs, and defensible tax/legal records. However, buyers will always perform independent diligence.Implication for Sellers: Diligence is not the villain. It is the mechanism that protects both parties and ensures defensible value.

4) The Assertion - Earnouts and Seller Notes: Risk-Laden Tools

EARNOUTS AND SELLER FINANCING EFFECTIVELY ADDRESS VALUATION GAPS - THE REALITY

Earnouts are among the most disputed mechanisms in M&A. Many fail to pay out fully and frequently spark litigation. Seller notes expose owners to credit risk post-close. Both structures can bridge gaps, but presenting them as simple alignment tools ignores substantial risk.Implication for Sellers: Use earnouts and notes only with careful structuring and legal precision. They are not universal remedies.

5) The Assertion - The Protective LOI Myth

DRAFTING PROTECTIVE LOI TERMS PREVENTS RE-TRADES - THE REALITY

Letters of Intent (LOIs) are largely non-binding. While they help set expectations, they cannot prevent buyers from seeking renegotiations based on diligence findings or business performance changes. Real protections reside in the definitive purchase agreement, through mechanisms like escrows, working capital adjustments, and material adverse change clauses.Implication for Sellers: An LOI can frame the deal, but it cannot guarantee the final outcome.

6) The Assertion - Legal Complexity: A Shield, Not a Burden

AGGRESSIVE COUNSEL OR COMPLEX DEAL STRUCTURES DERAIL TRANSACTIONS - THE REALITY

Complexity in structuring reflects real risks—tax allocation, regulatory compliance, cyber exposure, antitrust thresholds. Skilled counsel protects sellers’ value by addressing these risks early. Simplifying this dynamic to 'complexity slows deals' trivializes the role of experienced M&A attorneys.Implication for Sellers: Legal detail preserves value. A deal slowed for tax structuring or regulatory clearance is a deal protected, not derailed.

7) The Assertion - Deal Failures: Exaggerated Collapse Narratives

MORE DEALS ARE COLLAPSING, OFTEN FOR REASONS THAT CAN BE AVOIDED – THE REALITY

Although transactions sometimes fail, global deal abandonment rates align with historical norms. Recent figures indicate that deal values are rising in 2025, even as deal volumes stabilize. There is no indication of a surge in preventable collapses. Implication for Sellers: While some deals fail due to performance issues or external shocks, the assertion that 'deals are falling apart everywhere' is rhetoric rather than fact.

8) The Assertion - Awards and Rankings: The Illusion of Primacy

SOME ADVISORS BOAST TITLES LIKE '#1 IN THE WORLD' OR 'FIRM OF THE YEAR.' - THE REALITY

These awards are specific to certain years and categories, such as regional, sectoral, or size-band focuses. League table rankings often rely on filtered datasets, like 'privately held, sell-side only, under $500m.' Without a clear methodology, these claims are more marketing slogans than factual statements. Implication for Sellers: Approach superlatives with caution. Confirm the source, year, and category before trusting rankings or awards.

Summary for Executives

Transparency Over Fear

The main threat to sellers today isn't just interest rate changes, valuation complexities, or due diligence; it's misinformation. In an era of abundant information, exaggerated or misleading narratives can lead to fear-driven, inaccurate decisions, creating uncertainty and anxiety. As we approach Q4 2025, sellers must adopt a discerning approach to mergers and acquisitions (M&A). To mitigate misinformation risks, sellers should demand the following critical elements.

Evidence Over Slogans

Sellers should prioritize verifying claims using up-to-date, reliable market data instead of catchy slogans. Access to concrete evidence enables informed decisions grounded in reality. This involves seeking comprehensive market analyses, industry reports, and statistical data to understand the current economic climate, rather than relying on anecdotes.vidence or generalized statements that may not reflect the true state of affairs.

Sector-Specific Insights

Sellers should focus on industry-specific insights rather than general headlines, as each sector has unique dynamics, challenges, and opportunities. Analyzing sector-specific trends and benchmarks helps sellers understand their market position, identify competitors, assess demand, and make strategic decisions aligned with industry realities.

Disclosure of Trade-Offs

Sellers must understand the trade-offs of different financial structures, including earnouts and notes. It's important to assess how these arrangements affect transactions and future earnings. Consulting financial advisors and legal experts can offer valuable insights, ensuring sellers are informed and prepared for potential outcomes.

Transparency in Accolades

Sellers should demand transparency in how industry rankings and awards are determined. While accolades can boost a company's reputation, understanding the criteria and processes behind them is crucial. Sellers need to scrutinize the methodologies used to assess performance and validate claims to avoid being misled by superficial recognitions.

Conclusion

The M&A landscape is intricate, shaped by multiple factors and often complicated by misinformation. Sellers require precise information and a decision-making framework grounded in facts to prevent fear-driven marketing and rushed choices.

An evidence-based approach is essential. Sellers should utilize industry benchmarks to assess their business's performance, which helps in making pricing and positioning decisions. It is crucial to fully disclose financial trade-offs, including deal structures and tax implications, to accurately evaluate the real value of offers. Transparency regarding accolades, based on measurable achievements rather than marketing, is also important.