The lower middle market thesis. Why $5–25M EBITDA is the sweet spot.

The pricing geography.

The mid-market is not one market. It is at least three:

• Upper mid-market — $100M+ EV, banker-led processes, multiples consistently above 11x EBITDA.^[1][2]
• Core mid-market — $25M–$100M EV, mixed sourcing, multiples typically 8–10x.
• Lower mid-market — under $25M EV, often founder-owned, multiples typically 6–8x.^[1]

The arithmetic that drives modern PE strategy lives in the gap between the bottom and the top of that range. Buy something at 7x and roll it into a platform that exits at 11x and you have created enterprise value out of structure alone — before any operational improvements.^[4] That gap is the single most important number in lower-mid-market private equity.

Why the gap persists.

It would be reasonable to expect arbitrage to close gaps like this. It has not, for structural reasons:

Process intensity.

Lower-mid-market deals don’t typically run through bankers. Owners often don’t want to pay a banker for a $20M transaction, and bankers don’t typically want to run one. That removes the auction mechanism that drives prices up at the top of the market.

Operational immaturity.

A typical $5–15M EBITDA business has informal financial controls, customer concentration, owner dependence, and unsystematic operations. The discount reflects real underwriting risk — buyers price in the work it will take to professionalise the business. Platforms with operational playbooks can absorb that risk; standalone buyers usually can’t.

Limited buyer pool.

Mega-funds can’t deploy $200M into a $15M EBITDA business. Strategic acquirers often don’t want one. That leaves the buyer universe to mid-market sponsors, independent sponsors, and roll-up platforms — a smaller pool of competing capital, and therefore lower prices.

Information asymmetry.

Public information about a $200M EBITDA business is abundant. Public information about a $5M EBITDA regional contractor is often non-existent. That opacity favours buyers who have done the work to map a sector, and penalises tourists.

The execution challenge.

The reasons the gap exists are also the reasons it’s hard to capture. A platform that wants to execute three or four lower-mid-market add-ons a year against a defined thesis typically needs to:

• Map the entire viable target universe in the sector — usually 2,000–8,000 companies, mostly with no public profile
• Enrich contact data for 2–3 decision-maker roles per company (the founder, the CFO, the operations head)
• Run coordinated multi-channel outreach against the full universe — not just the top fifty names
• Detect the small number of in-play situations across that universe at any given moment
• Convert warm conversations to LOIs at industry-standard rates

That is not a corp-dev function. It is a sourcing infrastructure problem. The platforms executing this well in 2026 have either built it themselves or contracted it out as a service. The platforms that haven’t are paying upper-mid-market multiples for their add-ons.

Why the sweet spot will stay sweet.

Lower-mid-market dynamics are not going to reverse:

• Cherry Bekaert estimates over 80% of lower-mid-market deals are roll-ups today — meaning the demand side is structural, not cyclical.^[3]
• The supply of fragmented industries with founder-owned businesses ageing into transition is increasing, not decreasing.
• Mega-fund deployment pressure is pushing more capital into add-on strategies, which only works if there is a viable lower-mid-market supply.

The arbitrage at the bottom of the market is durable. The platforms that operationalise their access to it — with sourcing functions that match the size of the addressable universe — will continue to outperform on entry multiple. The platforms that don’t will keep paying upper-mid-market prices for the same EBITDA.