FG Perspective - Q4 2025
Resetting Transaction Expectations
November 20th, 2025
The lower middle market has entered a new phase. After two years of dislocation, valuations are stabilizing - but investor behavior has changed more permanently than many founders realize. Across 2025, we’ve seen one consistent theme: transactions that close share one thing in common - preparation.
1. Valuation Logic Has Shifted
The era of aggressive multiples tied to “potential” is over.
Investors are pricing more on structure and governance than story. They want to see evidence of systems that can scale - clean cap tables, defensible margins, and accurate reporting.
Companies that used to command 10x EBITDA are now seeing 6–8x, unless they can demonstrate operational discipline. This isn’t pessimism - it’s normalization. Those who adapt early will capture the most durable value.
2. Time-to-Close Is the New Metric
The best-run deals in 2025 closed faster, not richer.
Processes that took 9–12 months in the 2021 cycle are now completing in 5–7 - but only when the company is fully prepared before market engagement. This means readiness work - governance cleanup, narrative refinement, and diligence organization - is no longer optional.
Deals that stall are almost always those that skipped this stage.
3. Debt and Hybrid Capital Are Filling the Gap
Many companies still need growth capital but find equity terms unattractive.
Private credit, structured equity, and hybrid instruments are filling this middle ground, offering flexible capital at moderate dilution.
We’re seeing growing appetite from family offices and non-bank lenders for $2–10M tickets where traditional private equity won’t play.
For operators, this trend creates opportunity - but only if capital structure and reporting are built to support it.
4. The New Definition of “Market Ready”
Five years ago, being “market ready” meant having a deck and a data room.
Today, it means having a narrative, structure, and process that stand up to institutional scrutiny.
The companies that raise or sell successfully now are those that treat readiness as a core part of strategy not a last-minute exercise.
Looking Ahead
2026 will reward companies that approach capital decisions with professional process and measured timing.
There is still significant liquidity in the market - it’s just more selective.
The lesson is clear: slow down early to move faster later. Founders who invest in readiness now will have the advantage when the next market window opens wider.
About FG Advisory
FG Advisory is a boutique capital strategy and transaction advisory firm serving lower middle market companies and their investors.
We help clients plan, structure, and execute capital events efficiently and professionally.
