Julia Chirkova
The landscape of mergers and acquisitions (M&A) in 2026 presents a nuanced environment for business owners, characterized not by a complete shutdown, but by a "choppy" market. This volatility, while potentially daunting, offers significant opportunities for those who are meticulously prepared. For Certified Public Accountants (CPAs) guiding their clients through exit strategies, understanding these market dynamics is paramount. The prevailing conditions underscore the critical importance of proactive planning and strategic positioning, rewarding diligence while penalizing indecision.
This year, five key indicators are shaping the M&A arena, demanding close attention from advisors and their clients:
Abundant Capital Meets Selective Deal Flow
Despite a robust influx of capital, particularly from private equity firms sitting on substantial "dry powder," the market is experiencing a distinct mismatch between available funds and high-quality acquisition targets. This abundance of capital chasing a limited pool of attractive businesses is driving a competitive environment. While buyers possess significant financial capacity, they are becoming increasingly discerning in their pursuit of acquisitions. This selectivity means that valuation expectations on the seller’s side remain elevated, yet buyers are rigorously scrutinizing potential targets.
The practical implication for business owners is clear: preparation and presentation have ascended to unprecedented levels of importance. In this market, sellers who are not transaction-ready—meaning their financials are not meticulously organized, their operations are not streamlined for due diligence, and their strategic narrative is not compelling—are unlikely to garner a second look from serious buyers. The era of a deal "closing itself" due to market momentum has waned; success now hinges on a seller’s ability to present a polished, investment-ready proposition. This necessitates a deep dive into financial hygiene, operational efficiency, and a clear articulation of the business’s value proposition.
Pre-Letter of Intent Due Diligence: A New Standard
A significant evolutionary shift observed in 2026 is the evolving timeline for due diligence. Traditionally, the signing of a Letter of Intent (LOI) marked the formal commencement of the due diligence process. However, this traditional sequencing is increasingly becoming a relic of the past. More frequently, buyers are now requesting a preliminary financial validation before submitting a formal offer. This pre-LOI review, often described as a "quality of earnings lite," is a focused examination designed to provide buyers with sufficient confidence to extend a substantive offer without committing to the full, time-intensive due diligence process upfront.
For advisors, this development translates into a two-phased approach to advisory work. Once the initial pre-LOI diligence confirms the viability of a deal and an offer is accepted, the buyer’s lenders typically mandate a comprehensive Quality of Earnings (QoE) report to secure financing. Consequently, the scope of advisory engagement effectively doubles. Business owners contemplating a transaction must grasp this sequential process, and their advisors must be equipped to manage both the initial screening and the subsequent in-depth analysis. This shift demands greater transparency and preparedness from sellers at an earlier stage of the transaction lifecycle.
The Rise of Corporate Carve-Outs
A growing trend in the M&A market is the increasing prevalence of corporate carve-outs, where sellers are divesting specific divisions, brands, or business units rather than entire companies. This strategic maneuver often stems from a desire to shed non-core assets that no longer align with the parent company’s forward-looking strategy. While often a sound business decision, the execution of a carve-out presents unique accounting and financial reporting challenges that many sellers underestimate.
To successfully bring a carved-out unit to market, it must be presented as a distinct, standalone entity. This requires the meticulous separation of costs, the accurate allocation of revenues and expenses, and the generation of clean historical financial statements. These elements are crucial for enabling a buyer to confidently underwrite the acquisition. For CPAs advising clients exploring partial exits, the complexity and lead time involved in preparing a carved-out business for sale cannot be overstated. Early engagement in this process is critical to ensure that the unit is adequately de-merged and presented in a manner that maximizes its attractiveness to potential buyers. This involves establishing independent financial reporting systems and ensuring all operational interdependencies are clearly delineated.
The Enduring Impact of the Baby Boomer Generation
Across the middle market, a significant demographic force continues to shape M&A activity: the impending retirement of Baby Boomer business owners. Many individuals who have contemplated selling for a decade or more, often without a clear succession plan or a lined-up buyer, are now in their late seventies and early eighties. This confluence of demographic reality and deferred planning creates a pressing need for action.
Businesses that reach the market without adequate preparation—characterized by unclear financial records, outdated ownership structures, or unresolved risks such as customer concentration—face significant hurdles in attracting buyers and achieving fair market value. The tendency to defer exit planning, driven by the perception that the sale can always wait, now confronts the stark reality of advancing age and the diminishing runway for effective preparation.
This situation presents a critical opportunity for advisors to proactively engage with these business owners. Initiating conversations about exit readiness now is far more impactful than a compressed, last-minute effort when the seller is no longer able to effectively participate in the process. A few years of consistent, focused preparation can yield vastly superior outcomes compared to a rushed transaction under duress. The emphasis must be on demystifying the selling process and demonstrating the tangible benefits of early, strategic planning.
Deal Readiness Trumps Market Timing
Perhaps the most crucial, yet often the most challenging, signal for clients to internalize is the paramount importance of deal readiness over market timing. Business owners frequently identify external factors—such as fluctuating interest rates, geopolitical uncertainties, or perceived economic instability—as reasons to delay a sale. While some of these concerns may be legitimate, for many, macro-economic uncertainty serves as a convenient rationale to postpone a decision they are not yet emotionally prepared to make.
The fallacy in this approach lies in the inherent unpredictability of M&A markets. Unlike short-term stock trades, M&A markets can shift rapidly. When conditions change, buyers who are well-prepared to execute transactions will capitalize on prevailing opportunities and secure premium valuations. Conversely, sellers who are still in the process of "getting ready" risk missing the optimal window, potentially forfeiting significant value.
True deal readiness encompasses several key elements:
- Clean Financials: Ideally, audited or reviewed financial statements for the past two to three years, providing a verifiable and transparent historical performance record.
- Defensible Adjusted EBITDA: A clear, well-supported calculation of earnings before interest, taxes, depreciation, and amortization, adjusted for non-recurring or discretionary items, demonstrating the true operational profitability.
- Operational Transparency: A clear understanding and documentation of customer concentration, key contract terms, and critical employee dependencies, providing buyers with a comprehensive view of operational risks and strengths.
- Up-to-Date Corporate Structure: Current and accurate corporate structure and ownership documentation, ensuring legal and administrative compliance.
- Carve-Out Preparedness: For partial exits, the complex process of separating and documenting a business unit must commence well in advance of any intended sale.
Achieving these benchmarks does not obligate a client to commit to a transaction. Instead, it equips them with the agility to act decisively when the opportune moment arises, rather than facing a scramble when market conditions are less favorable.
Strategic Actions for CPAs in the Current Market
CPAs best positioned to guide clients through the complexities of the 2026 M&A market are those who are not waiting for a transaction to initiate conversations. They are proactively engaging in dialogue about deal readiness through comprehensive assessments, detailed carve-out planning discussions, and candid explanations of the rigorous nature of quality-of-earnings scrutiny.
The current "choppy" market, rather than being an obstacle, represents a significant opening for advisors to strengthen their client relationships and establish a more robust advisory foundation. By anticipating and addressing client needs before they become urgent, CPAs can ensure their clients are well-prepared to capitalize on opportunities when the M&A market fully reopens or when specific strategic windows present themselves. Those who proactively prepare will undoubtedly be the ones who benefit most when the floodgates of M&A activity ultimately open.
About the Author:
Craig Hamm, a partner in the Transaction Advisory Services practice at BPM, a prominent accounting, tax, and advisory firm, brings extensive expertise to advising both buyers and sellers. His specialization includes quality of earnings assessments, financial due diligence, and corporate carve-out engagements, making him a valuable resource for navigating complex M&A transactions.
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