The Adoption Gap Is the Opportunity

For decades, the lower middle market operated largely the same way. Founder-led businesses, manual processes, legacy systems, and limited access to the kind of technology that larger enterprises took for granted. That is changing — and the change is happening faster than most owners realize.

Artificial intelligence and automation are no longer exclusive to the Fortune 500. Cloud infrastructure, modern data systems, and applied AI are filtering down to smaller businesses for the first time. For owners of companies generating between $1 million and $25 million in EBITDA, this shift carries real consequences — for operations, for profitability, and for valuation.

The Adoption Gap Is the Opportunity

Here is the defining fact of this moment: fewer than 1% of lower middle-market companies qualify as "AI power users."

That figure conveys two narratives simultaneously.

For owners who act, it represents a genuine first-mover advantage. In a segment characterized by fragmentation and manual inefficiency, a business that introduces AI-enabled workflows stands apart from nearly every comparable company in its market.

For owners who wait, it signals a widening divide. As adoption accelerates — and it will — the businesses that integrated AI early will have already locked in stronger margins and more competitive growth rates. Latecomers will find themselves playing catch-up rather than commanding a premium.

As Jamie Kennedy, Co-Founder and Partner at Griffin's Wharf Partners, puts it: "The next five to ten years could be generational in terms of the opportunity set."

What AI Actually Does for a Smaller Business

The value of AI in the lower-middle market is not theoretical. It is operational and measurable.

Margin expansion is the most immediate benefit. Workflow automation reduces the cost of repetitive, labor-intensive tasks — invoicing, scheduling, data entry, customer service — freeing teams to focus on work that drives revenue. Kennedy is direct on this point: "It's table stakes to automate workflow. That's just going to increase margins."

Growth acceleration follows. AI levels the competitive playing field, allowing a focused, nimble company to compete against larger, better-capitalized rivals by moving faster and serving customers more effectively. As Kennedy notes: "If you can enhance your product offering and your service offering, you're now competing against other platforms that are well more capitalized than you, but you're doing it much more nimbly."

For a business owner, both outcomes matter enormously — not just for daily operations, but for the story a company tells when it eventually comes to market.

Why This Matters If You Are Considering a Sale

Sophisticated buyers are paying close attention to AI capability. Increasingly, technological adoption is treated as a core indicator of a business's future potential — not a secondary consideration.

The logic is straightforward. A business with AI-driven margins and demonstrable growth commands a different conversation than one carrying avoidable operational drag. In a fragmented market full of interchangeable targets, differentiation attracts competitive bidding. And competitive bidding drives valuations.

The broader deal environment reinforces this. Deal activity is expected to strengthen through 2025 and into 2026 as private equity firms face pressure to return capital and strategics restructure for new trade realities. Buyer appetite for AI-related assets is rising.

The conditions for well-positioned sellers are favorable — but only for those whose businesses reflect what sophisticated acquirers are actively seeking.

A few principles worth considering:

• Margins drive valuation. AI-driven efficiency directly supports this — and buyers pay more for businesses where efficiency is structural, not situational.

• Growth commands a premium. Automation-aided growth is not just a financial metric; it is a signal that the business has built scalable capabilities.

• Differentiation invites competitive interest. In a crowded field, an AI-enabled business stands out and attracts the kind of buyer attention that moves deal prices.

• Buyer expectations are shifting. Waiting until AI adoption is universal forfeits the very advantage available today.

The Strategic Takeaway

The lower-middle market has long rewarded operators who bring more than just capital to the table. AI is the latest — and arguably the most powerful — tool in that tradition. But its value as a differentiator is time-limited. As adoption spreads, the edge narrows.

Owners who invest in AI capabilities now — ahead of a sale, ahead of the field — will be best positioned to present a compelling, high-value business precisely when buyer interest in AI-related assets is at its peak.

The window is open. The question is whether you are moving through it.