Buy-Side Practice Q2 2026 Update
Harbor View Advisors Buy-Side Q2 2026 Update
Buyside Q2: Improving Sentiment Overview After a rough start to the year, we are sensing an easing of investor anxiety. As one PE MD noted “…after a while, the same worries over and over, start to become more unresolved background noise and decisions still have to get made.” A decades old PE client noted how a pickup in Q2 closings brought them back to even following an unprecedented poor Q1. 57% of dealmakers cited valuation expectations as the top reason deals failed in H1 2026, more than double the 28% from a year ago.1 Investors ranked AI Disruption and Opportunity ahead of both Interest Rates and Geopolitics as the factor most likely to move an investment committee this quarter, a notable handoff from tariffs, which just a year ago dominated the conversation and now sit at the bottom of the list. Axial recorded 3,523 deals in the lower middle market in Q2, a modest 5% QoQ increase, with particular strength in the Technology sector, where transactions were up 23% YoY.2 The capital chasing AI remains enormous, and increasingly self-referential, hyperscale capital expenditure is tracking toward $690 billion in 2026, with datacenter build-out. But the appetite for that spend is running well ahead of the current evidence. A recent Bain & Company study found that companies are routinely undershooting their targeted AI savings goals, with nearly 40% of firms measuring AI cost savings landing below 10%, a gap between promise and payback that is now showing up directly in how sponsors underwrite software assets and how lenders price them.3 Moreover, we’ve seen several clients step back from steep valuations, in areas like backup power generation and technology field services, as concerns about over-hyped data center and grid infrastructure conditions become more priced into market multiples.
Buyside Leading Indicators Positive supply and demand trends bodes well for lower middle market M&A in the H2 of 2026.
Supply
Demand
Valuations
The Small Business Admin. just doubled borrowing limits, allowing more search funds, sponsors and family offices to lever up.
LP’s continue to pressure GP’s for returns before committing to new funds. Expect more assets coming to market.
Small business filings have risen 50% in H1 2026 – mounting debt pressure on sub $10M EBITDA firms may lead to easing valuations.
LMM Deals 3,523
PE Deal Value $177B
PE Dry Powder $1.0T
Up 5% QoQ
Down 37% QoQ
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Harbor View Advisors Buy-Side Q2 2026 Update
Q2: AI Is Everything, Everywhere All At Once AI's Two-Sided Ledger A gap is splitting the market into winners and losers along a single axis: who benefits from AI demand, and who gets disrupted by it. On the demand side, the infrastructure buildout keeps compounding as Industrials outpaced the S&P and other key sectors we track like HCM and IT Services. For emphasis, on SpaceX’s Q2 earnings call, Elon Musk noted "the appetite for bandwidth will be much greater" as AI, humanoid robots, and autonomous vehicles multiply the number of devices competing for capacity. Software sponsors are living the other side of that ledger. Deal value in the sector fell to $10 billion in Q2, down 65% YoY and 90.3% below its Q3 2025 peak, as the category that anchored the last decade of PE returns is now the one practitioners are most actively trimming. Software was cited more than any other sector as the one investors pulled back from of S&P 500 companies mentioned over the past 12 months, while B2B services and "AI" during Q2 earnings calls energy were where they leaned in.
~65%
PE Deals Improved in Q2 Despite Fewer Mega-Deals Overall, Lower Middle Market M&A transactions were up 5% QoQ in Q2, with deal value down 39% YoY. “Mega-Deals” have been driving up average deal values, however, Q2 saw a reversal of fortune. The average Q2 deal value was only $85M, a 33% sequential decline from Q1. The $2.5 billion-plus deal category generated only $26 billion across five deals, down 82% from its Q3 2025 peak, and takeprivate value collapsed 90% QoQ to $6.2 billion. A gaining IPO market may be fulfilling the long-awaited promise of an opening exit window. However, after enough false starts, that promise is wearing thin, and the inventory keeps building: PE-backed company inventory now stands at 13,509 portfolio companies, a nine-year backlog to clear at the current pace of exits.2
Value Creation Takes a New Turn Every thread this quarter traces back to the same tension: a genuine, well-funded belief that AI is rewriting how businesses create value, colliding with a liquidity system that hasn't caught up. Energy and digital infrastructure are where conviction is compounding; software is where it's being repriced; and until distributions start flowing again, fundraising, dealmaking, and credit will all stay defensive, regardless of how the rate and inflation picture resolves.
[1] Axial: Where are Lower Middle Market Valuations Headed in H22026? [2] WSJ: Private-Equity Firms Are Sitting on a Nine-Year Backlog [3] Bain & Company: Your AI Budget Is Growing, Your Returns Aren’t Here’s Why.
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Harbor View Advisors Buy-Side Q2 2026 Update
M&A Score Card Total US PE Deal Activity by Quarter1 2,255 1,988
$350
1,883
2,500
2,203 2,300 2,138 2,263 2,127 2,116 2,188 2,073 2,161 2,098
2,000
1,667
$300 $250
Q4
2024
Deal value ($B)
Q1
Deal count
1,200
$300 $250
551
446
545
$319.2
$308.0
$371.4
$407.9
$381.4
$384.8
$0
$252.0
$150 $50
2020
2021 2022 2023 2024 2025 2026* Capital raised ($B) Fund count
$267.8
$301.3
$142.4
$333.9
3,000
800
2,500 2,000
600
$200 $100
3,500
1,000
1,500
400
1,000
200
500 0
0
Q1
Q2
Q3
2024
Q4
Q1
Q2
Q3
Deal Count
2025
HVA One-Year Index Performance
40.0% 30.0%
3,047
$350
4,000
2,856
797
0
2026
3,320
1,071
500
Q2
3,362
1,095
Q1
2025
3,050
836
Q4
2,555
$450
Q3
1,000
LMM Deals by Quarter2
US PE Fundraising Activity1 $400
Q2
3,076
2023
Q3
$233.0
Q2
2,578
Q1
2,534
Q4
$193.8
Q3
$259.5
Q2
$206.8
Q1
$208.5
$0
$176.9
$50
$185.5
$100
$168.9
$150
$195.9
$200
$282.6
1,500
Q4
Q1
3,523
$400
Q2
2026
Industrials +28.4%
20.0%
S&P +20.9%
10.0% 0.0%
HCM +1.4%
-10.0% -20.0% -30.0% -40.0% Jun-25
IT Services -36.3% Jul-25
Aug-25 Sep-25 Oct-25 Nov-25 Dec-25 Jan-26 Feb-26 Mar-26 Apr-26 May-26 Jun-26
[1] Pitchbook [2] Axial: Where are Lower Middle Market Valuations Headed in H22026?
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Harbor View Advisors Buy-Side Q2 2026 Update
HVA Buy-Side: Industry Focus Areas Industrials Industrials stayed the busiest sector in M&A through Q2, about one-third of deal volume, ahead of both IT and Financial Services. Industrial M&A accelerated into Q2 2026, with 818 deals announced across our subsectors — 213 Industrial Technology, 198 Industrial Services, and 407 Traditional Industrials — the highest quarterly total since early 2022. Looking ahead, we expect deal activity to keep improving as financing conditions grow more favorable. With roughly 70% of PE-backed companies now approaching or exceeding traditional hold periods, sponsors are facing mounting pressure to exit, which should keep pushing transaction volume higher.
IT Services Our IT Services + Digital Transformation team expects M&A activity to remain healthy through 2026, supported by enterprise AI adoption, cloud and data modernization, and sustained investment in cybersecurity and managed services. Gartner forecasts worldwide IT spending will reach $6.4T in 2026, favoring providers that can build, integrate, secure, and operate increasingly complex technology environments. Buyers are underwriting demonstrated AI capability rather than broad AI positioning, prioritizing firms with automation embedded in delivery, scarce technical talent, and premier hyperscaler and enterprise application credentials. Managed services consolidation remains security-led, rewarding recurring revenue, strong retention, and compliance-driven offerings. Harbor View expects scaled platforms with organic growth and proven AI-enabled delivery to command premium valuations, while sub-scale or undifferentiated providers face greater valuation pressure.
HCM Our Human Capital Management team sees a more constructive backdrop in 2026 after several years of contraction. The U.S. staffing market appears to have found its floor, and SIA (Staffing Industry Analysts) projects a return to growth in 2026 and 2027 as labor churn resumes. Performance is now dictated by segment rather than the broader cycle, with healthcare, industrial, engineering, education, and life sciences supported by structural demand while segments exposed to automation and offshoring stay under pressure. M&A is picking up, driven less by buyer appetite than by improving seller fundamentals and greater owner willingness to engage. Acquirers continue to prioritize strategic fit over scale, scrutinizing revenue and earnings quality, customer concentration, and AI roadmaps. Harbor View expects ample capital and technology-enabled talent platforms to keep driving activity, with specialized, higher-margin firms drawing the strongest interest.
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Harbor View Advisors Buy-Side Q2 2026 Update
Case Study – Baringa’s U.S. Expansion Scaling Digital Transformation with the Altruas Team Advised by Harbor View Advisors Situation
In early 2025, Baringa, a global management consultancy headquartered in London, sought to accelerate its U.S. expansion, particularly in digital transformation and technology delivery. With growing demand across sectors like energy, financial services, and consumer products, Baringa aimed to deepen its capabilities in CRM, ERP, and custom development. Harbor View was engaged to selectively identify firms with the right focus, culture and values that align with the Baringa “People-First” model.
Acquired the team of
Challenge
Baringa needed a partner with proven technical expertise, strong client relationships, and amazing cultural alignment. The target had to: • Operate near Baringa's U.S. Hubs. • Focused capabilities on CRM and ERP. • Complement Baringa’s people-first, “unashamedly geeky” and impact-driven values. • Harbor View collaborated with a team of Baringa executives in a targeted Buy-side process, navigating a fragmented landscape of boutique consultancies and ensuring strategic fit across delivery, culture, and growth.
Outcome In July 2025, Baringa acquired the Dallas-based Altruas team, a digital and technology consultancy with deep experience in CRM, ERP, and custom development. The acquisition was successful because it: • Expanded Baringa’s U.S. digital and technology practice. • Integrated a high-performing team with sector expertise and well-established client trust. • Matched cultures and values, both firms shared the values of the Altruas name, based upon “Altruistic service supports our people and clients to Be Better” • Harbor View served as the exclusive Buy-side advisor, helping Baringa execute a valuesaligned acquisition that delivered strategic and operational impact.
In Summary
Harbor View was engaged by Baringa, a global management consultancy, to accelerate its U.S. expansion and identify a culturally aligned digital and technology partner. Harbor View led a targeted buy-side process that culminated in the acquisition of Dallas-based Altruas, expanding Baringa’s U.S. digital capabilities and strengthening its people-first culture. 6
Harbor View Advisors Buy-Side Q2 2026 Update
HVA Buy-Side Practice Overview During the first half of the year, we have seen strong traction with firms focused on niche industries, such as special education, consulting, and industrial automation, as well as firms with portfolio companies that have strong market reputations. Response rates have improved, and clients increasingly expect more closings in the second half of the year, with additional opportunities building into 2027.
Select HVA Buy-Side Engagements – Niche Markets Financial Services & Tech
Industrial & Environmental
BPO & Prof. Services
Enterprise SaaS & IT
Other
WEALTH & ASSET MANAGEMENT
INDUSTRIAL AUTOMATION
MANAGEMENT CONSULTING
DIGITAL TRANSFORMATION
SUPPLY CHAIN TECH
INSURANCE ANALYTICS
ENVIRONMENTAL SERVICES
OUTSOURCED HR / PEO
SAP CONSULTING
GROCERY TECH
ANNUITIES BROKERAGE
ENVIRONMENTAL ENGINEERING
STAFFING
DAAS
LMS / EMPLOYEE ENGAGEMENT
MORTGAGE SERVICES
WASTE WATER / WASTE HAULING
OUTSOURCED S&M
MANAGED SERVICE PROVIDER
SPECIAL EDUCATION
MEDICAL BILLING
POS HARDWARE REPAIR / SERVICES
B2B DISTRIBUTION
CLINICAL RESEARCH
CYBER SECURITY
LEGAL SERVICES
SPECIALTY FINANCE
JANITORIAL SERVICES
REVENUE CYCLE MANAGEMENT
FOOD EQUIPMENT DISTRIBUTION
Select HVA Outcomes
acquired
acquired
acquired
acquired
acquired
acquired
Connect with our Buy-Side Team
John Mathis Partner jmathis@hvadvisors.com
Cameron Bruce Associate cbruce@hvadvisors.com
Carson King Senior Associate cking@hvadvisors.com
Gabe Lorin Associate glorin@hvadvisors.com
Caleb Land Analyst cland@hvadvisors.com
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Tatiana Lathion Associate tlathion@hvadvisors.com
Abi McLauchlan Analyst amclauchlan@hvadvisors.com
Harbor View Advisors 904.285.4278 Jacksonville, FL & New York, NY
harborviewadvisors.com Harbor View Advisors @hvadvisors
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