Lower Middle Market Tech M&A – Is it Time to Sell?

2025 Deal Flow Themes

As we step into Q2 of 2025, the lower middle market technology M&A space is humming with renewed momentum. Dealmakers are navigating a dynamic environment shaped by stabilizing valuations, easing interest rates, and sector-specific growth drivers. Here’s a snapshot of the most influential trends defining the M&A landscape right now and why this may be the perfect window for business owners to consider an exit.

Valuations Remain Favorable for Sellers

Valuations, while no longer at their 2021 peak, remain robust. Valuations are strong and especially for firms with a track record of growth. For buyers, this emphasizes the need for precision in target selection and value creation strategies.

Improved Financing Conditions Boost Buy-Side Confidence

With interest rate cuts projected throughout 2025, acquisition financing is becoming more accessible. Lower capital costs are encouraging both strategic acquirers and private equity firms to lean into M&A, often with higher leverage while maintaining healthy debt ratios.

Private Equity Is Active - Even Eager - but Cautious

Despite increased scrutiny and diligence prompted by economic uncertainty, private equity is poised for an active year. PE firms are hungry for platform companies and add-ons. With dry powder at record levels and a stabilizing credit environment, firms are well-equipped to pursue high-conviction deals.

Tech Still Dominates – Especially Software and MSP

Tech remains the crown jewel of M&A. In 2024, the technology sector made up 83% of deal volume in the broader TMT space, with software contributing a massive 65% of total tech deal value. Expect this trend to deepen as digital transformation and SaaS adoption continue accelerating.

Shifting Regulatory Landscape Brings Optimism

A potentially more business-friendly regulatory and tax environment is on the horizon, sparking optimism across the deal community. While cross-border dealmaking may still face friction, domestic transactions could benefit from lighter compliance burdens.

Founder Exits on the Rise

Aging ownership demographics are leading to an uptick in owner-led exits. Many tech founders in the lower middle market are considering succession options, especially in anticipation of future tax code changes—fueling a steady stream of targets for acquisition.

AI Integration Sparks Strategic Acquisitions

AI is no longer optional—it’s transformative. Companies are aggressively pursuing acquisitions to integrate AI capabilities, seeing M&A as a fast track to innovation and competitive advantage. The “AI CapEx super cycle” is well underway, and buyers are eager to participate. For owners, founders, and CEOs, the message is clear: AI will fundamentally reshape the dynamics of your industry within the next two years. Positioning your company now—whether for growth or exit—has never been more critical.

Why It's a Great Time to Consider an Exit

For tech founders and business owners, 2025 presents a golden opportunity to realize value:

Stable valuations and a rebound in buyer confidence mean you’re likely to get strong offers.
Strategic buyers and PE firms are flush with cash and motivated to deploy.
If retirement or a second act is on your mind, the current environment supports a smooth transition.
Locking in gains before potential tax reforms kick in can protect your upside.

Preparing for a Successful Exit: Falcon Capital Partners' Knowledge-Based Banking Approach

At Falcon Capital Partners, we believe that a successful transaction starts long before the deal table. Our Knowledge-Based Banking framework equips business owners with the insight and strategy needed to optimize outcomes. If you’re considering an exit, here’s how to prepare thoughtfully and effectively:

Align Personal and Business Financials: Begin by consulting with your estate and wealth advisors to ensure your personal financial goals align with your business transition. Next, ensure your company’s financial statements are clean, accurate, and GAAP-compliant—this builds credibility and sets a strong foundation for valuation.
Identify and Elevate Your Valuation Drivers: Understand what makes your business valuable in the eyes of a buyer. Spotlight your strongest growth levers. Recurring revenue, customer retention, margin expansion, and market differentiation.
Mitigate Risks Before Diligence Begins: Buyers will scrutinize legal exposure, intellectual property protection, customer concentration, and cybersecurity readiness. Address these proactively to avoid red flags during due diligence.
Build a High-Impact Deal Team: Engage experienced M&A advisors, financial consultants, and legal counsel early in the process. Falcon Capital Partners offers strategic guidance and deep market knowledge to help navigate every stage of the transaction.
Adopt a Buyer’s Perspective: Position your business as a scalable, synergistic opportunity. Demonstrating future growth potential and operational resilience can significantly enhance deal terms and buyer confidence.

At Falcon, we don’t just execute deals, we help you build and capture value through insight, strategy, and experience.

Let’s prepare your business for what’s next.