USA – ILLINOIS Trends and Developments Contributed by: Mitchell Roth, Michael Shaw, Andrew Silver and Peter Shepard, Much Shelist, P.C.
CPGs, service-based businesses and software/ technology, where strategic fit justifies paying a higher multiple. Further, many corporate strategic buyers have taken a page from private equity firms and bulked up their internal M&A teams, which can facilitate transactions at the speed of funds and sponsors, but have the added advantages of being able to leverage the strategic’s brand, synergies and historical operating strengths. We expect this advantage to continue in the years to come in the middle market. The Middle Market as the Growth Engine Chicago, Illinois is one of the pillars of the middle mar - ket and is home to several national leaders of funds, sponsors and strategic buyers. The middle market is proving more resilient than the large-cap space in the current M&A environment for numerous reasons, including: • Broader buyer universe: Middle-market targets attract both financial sponsors and strategic buy - ers, expanding the competitive field. This variety of buyers offers unique deal constructs and opportu - nities for sellers, both entrepreneurial and sponsor- backed alike. Chicago is home to a wide variety of both of these types of buyers, who are very active in the middle-market space. • Financing and deal structure flexibility: Middle- market deals are the right size to be financed through a blend of cash, seller financing, earn-outs and appropriate leverage, allowing such deals to be less dependent on the tight-credit markets. Additionally, certain funds have utilised their equity and internal cash reserves to take advantage of middle-market opportunities without taking on additional debt. There is increased optimism regarding rate stabilisation in the near future, which helps with the cost of capital and certainty of deal structure, which had been negating factors in the recently stagnant deal market. • Operational value-add potential: Private equity funds and other financially backed sponsors often identify tangible operational improvements in middle-market companies that can drive outsized returns. One of the pillars of sponsor-backed buy - ers has been the ability to make strategic additions to the C-suite and to add a plethora of resources
to assist the back-office and revenue-driving operations of sellers. Buyers need to understand how they will add synergies and efficiencies to the target in order to create value during the buyer’s hold period. • Synergised growth via acquisition: Financial sponsors have the resources to acquire similarly situated sellers that help grow the platform in vari - ous ways, including geographical reach, accretive operational growth and increase in market share. The ability to create synergised value across a platform through add-on acquisitions has always been a critical vehicle to achieve certain valuation thresholds that would yield the desired exit value for the platform. In addition, as a portfolio com - pany increases in EBITDA, a sponsor can hope to achieve an increase in the multiple it receives at an exit. As the M&A market continues to open up, so too does the opportunity for sellers to realise the benefit of synergised valuation potential from private equity fund buyers, including by investing alongside the buyer in its investment in the plat - form. Buyer/Seller Dynamics and the Narrowing Gap In 2025, the tone of negotiations is shifting between buyers and sellers. While headline multiples in some industries have softened, competition for high-quality middle-market assets remains intense. Strong sell - ers – those with a diversified customer base, healthy market share, recurring revenues and clean financials – can still command premium prices over other sell - ers. In years prior, sellers were acutely aware of the pandemic-level valuations in their respective sectors and, as such, were unwilling to stray from such lofty expectations as the market plateaued. Conversely, buyers could not justify such high multiples when performance was either stagnant or on the decline due to various market conditions. As we head into the back half of 2025 and into 2026, that gap between seller expectations and buyer hesitation is narrowing dramatically. From the sellers’ point of view, time and space away from the frothy valuations of several years ago has now been superseded by hard financial data on their performance and what the market will reason - ably call for upon a sale. Furthermore, there is a level of uncertainty over the long-term economic outlook, which may cause middle-market companies, espe -
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