At the beginning of 2025, I predicted “The year of M&A” on Topline.  Not all predictions age well, but this one did. Global M&A volume rebounded sharply, rising from roughly $3.0 trillion to over $4.5 trillion. The window reopened, led primarily by mega-deals, with over 68 transactions north of $10B in enterprise value.  In 2025, M&A came back with a vengeance.  The capital markets were open for business.

2026 will look the same.  But different.  

As of today, there are roughly 30,000 unsold portfolio companies, valued at around $3.6 trillion, and held well past traditional exit windows.  One reason liquidity has been hard to come by; funds simply haven’t been able to realize and return capital at the pace investors expect.

If 2025 marked the return of dealmaking, 2026 will be the year the market truly clears. Not just at the mega-cap level, but in the middle market and lower middle market. And not just through straightforward acquisitions, but through more creative deal structures than we’ve seen in over a decade.

Last year, these deals didn’t happen because buyers and sellers were still too far apart.   Too many founders still harbored dreams of 15x ARR and going back to the days of COVID.  So what’s changed?

Simple: time has finally done its work. We have a generation of investors that deployed capital at peak valuations in 2021. Many of those funds are now long in the tooth, particularly for private equity.   Liquidity matters again. Capital needs to be recycled. And that pressure creates opportunity.

This pressure is measurable. Average private equity hold periods have stretched to roughly 6.5–7 years, well above historical norms, with over 60% of buyout-backed companies now held longer than four years. At the same time, distributions back to LPs have slowed materially, leaving many funds with aging portfolios and limited realized liquidity.

That combination of  long holds, low distributions, and aging capital creates the clearing pressure we’re about to see.

Deals will get done in 2026. But they will not clear at historical benchmarks.  The backlog is not theoretical. 

There is no longer a market for 10x ARR businesses by default.

What we are seeing instead is a final reconciliation between supply and demand. Strong companies will still transact, but at prices that reflect durability, not optimism. In many cases, that means roughly 6x ARR for the very best assets, and less for everything else.

It may be painful to acknowledge but these forces represent the market working. As intended as it should.  

Buyers today are underwriting reality. Cash flow matters. Margin quality matters. Adjustments get scrutinized. Narratives get discounted. This is not a bad thing, but it is a different thing.

A friend of mine sold his business last year. The company grew from $10M to $14M in ARR, representing 40% year-over-year growth. He described it to me as a “Rule of 70” company, pointing to 30% EBITDA margins.

When we got on the phone, he clarified that the 30% figure was adjusted EBITDA. The real EBITDA was closer to 8%.  The investment bankers were doing their investment banking thing.  Adding some stuff back.  Taking a bunch of stuff out.  

And voila.  Through some magic accounting 8% became 30%

The “adjustment” was effectively a game for the bankers on both sides to earn their keep and demonstrate their utility as financial wizards.  

The buyer saw through the adjustment and paid roughly 6x ARR.  It was below what the company had hoped for, but the deal cleared. The market cleared. Everyone moved on.

The lesson wasn’t that growth didn’t matter. It was that cash mattered more than slogans.

But it was a genuine exit and the key stakeholders involved still cleared 7 and 8 figures. 

I have another friend who raised a significant amount of capital at the height of the 2021 market. The newest investors were unfamiliar with the space and increasingly agitated as growth slowed. Buyers remorse after buying at the top of the market and acting out their incentives on the CEO.  At one point, they were even pushing to shut the company down.  And the company is objectively doing very well.    

Instead, my friend engineered a buyout. He took the company back to the Series A valuation, bought out unhappy investors at a steep discount, and reset expectations entirely.

What he really bought back wasn’t equity. It was time.  And optionality.  And peace of mind.  

Freed from unrealistic growth pressure and negative energy, the company is now focused on efficiency, profitability, and building enterprise value over a longer horizon.

The valuation hurdle is manageable.  In fact, arguably they’re already there.  

The bad energy is gone.  The founder is energized.  The company is growing.  Everyone is happy.

These two stories are emblematic of the choices companies will face in 2026. There are three clear lanes:

AI-native companies experiencing true hypergrowth will continue to pursue the traditional venture path. They will chase 300–500% growth rates, burn capital aggressively, and accept margin volatility. A small number will emerge as category-defining winners when the dust finally settles. Many will not. Some flameouts will be dramatic and extreme.  But the rules of the game are clear to everyone involved.

These are legacy SaaS businesses attempting to innovate their way to relevance. AI must show up in the numbers, not just the product roadmap. Growth rates need to accelerate meaningfully, and there must be a credible path to profitability. Without real EBITDA, even strong growth struggles to command premium multiples.  This is perhaps the most dangerous lane.  Founders convinced they’ve finally weathered the storm to get to a “Rule of 70” threshold only for the market to tell them to sit down and take a seat.

This is the lane Pavilion is in. Community at scale is not a hypergrowth category. It grows through pricing power, retention, and disciplined expansion. It requires predictable, repeatable EBITDA. The value here is not created in a single exit event, but through sustained cash flow over time.

The discipline here is time horizon.  You must understand that there might not be a buyer for your business next year at a price that works for you.  Your job is not to force the issue but to continue to focus on the right metrics (namely retention) and take a longer term view than the ecosystem or your investors might be comfortable with.  

None of these lanes is inherently better than the others. The danger is misunderstanding which lane you’re actually in.

The core task in 2026 is clarity.

If you are AI-native, you must pursue extreme growth. If you are AI-first, you need strong growth and a real path to 20–30% true EBITDA margins. If you are a compounding business, your job is to demonstrate that cash flow is durable and recurring, and that it compounds over time.

The worst outcome is pretending to be something you’re not. Burning capital as if you’re in lane one when you’re actually in lane three is how companies lose control and run out of options.

This year, I’ve come to terms with the fact that Pavilion is not a hypergrowth company. That realization wasn’t disappointing. It was clarifying.

My job in 2026 is not to chase someone else’s outcome or someone else’s timeline. It’s to control my mindset, extend our time horizon, and build something that endures. A business that grows efficiently, generates predictable EBITDA, and compounds value year after year can be life-changing, even if it never makes headlines.

With the right time horizon and the right mindset, Pavilion can be a $1B company one day. With the wrong mindset and the wrong lane, I’ll try and sell it for parts to the next PE buyer that wants to pay 2x revenue for a community.

Liquidity is one outcome. Durability is another. Both are valid. Confusing the two is where problems start.

Sometimes building something beautiful takes years and decades. Not quarters.

2026 will be an active year for M&A. Markets will clear. Deals will get done. If you're desperately trying to get off the bus, if you’re an investor looking for an exit, you can find one.  If you desperately need liquidity at any price, there is a bargain basement hunter out there that will happily take your asset off your hands for pennies on the dollar.  

There is a deeper, more strategic opportunity out there however.  

The companies that succeed will be the ones that pick the right lane, align their capital and expectations accordingly, and give themselves enough time to let compounding do its work.

Clarity will be rewarded. Confusion will not.

Become a Topline insider by joining our Slack channel.

We want to hear your feedback! Let us know your thoughts.