Research · Issue 01

Off the List

Why the best lower-middle-market deals close before they’re marketed — and the auction premium a buyer pays for being late.

By Ivan Smojver · Cerebra · July 2026

1The glut is capital; the shortage is deals

The story the lower middle market tells itself is that money is hard to come by. The data says the opposite. Global private-equity dry powder stands near $6.7 trillion, about 25% of industry assets under management, and even after receding from its all-time high it remains a record overhang (Preqin; S&P Global Market Intelligence, 2025).

What is scarce is the thing to buy. US PE middle-market deployment ran $97.2 billion across 978 deals in Q2 2025 (PitchBook), with deal counts down year over year even as multiples held firm. GF Data recorded middle-market volume falling roughly 20% quarter over quarter in a recent period while purchase prices rose — the signature of too much money chasing too few assets. A buyer’s problem was never raising the fund. It is originating a business worth the fund. Origination is the scarce function, and it is the one an auction does nothing to solve.

2What a marketed process actually is

When a business reaches a banker, it enters a process engineered to do one thing: maximize price for the seller by putting buyers in competition. That is the advisor’s job, and the good ones are very good at it. But two facts about the marketed path rarely make it into a buyer’s model.

First, most businesses that list never sell. Over 70% of businesses put up for sale fail to find a buyer (Project Equity; Teamshares, 2024). Platforms like Axial publish advisor “close rates” precisely because closing is the exception, not the rule. Second, the ones that do sell close into a room built for bidding — which is exactly where a buyer’s edge goes to die. On the list means late, visible, and one of many.

3What competition does to price

The cleanest evidence that bidders — not the asset — move the price: across comparable deals, financial buyers pay a 16–24% discount to strategic buyers (Mnejja, SSRN 2010). Same companies, different competitive tension, materially different price. Strip the auction and the number falls.

That spread lives inside the LMM multiple bands, which widen as deals get more contested:

Worked scenario. A manufacturer with $5M of TTM EBITDA, using the real GF Data bands as inputs:

Six million dollars of purchase price, on the same company with the same cash flows, bought nothing but the privilege of arriving with company. The spread is consistent with the 16–24% financial-vs-strategic discount above: it is the cost of competition, not the value of the asset. The buyer who was early paid $30M for what the buyer who was late paid $36M for.

4The supply nobody is matching

Beneath all of this sits the largest transfer of small-business ownership in modern history. There are roughly 33 million small businesses in the United States (SBA), about 40% owned by baby boomers, and fewer than one-third have any succession plan (Teamshares; Guidant Financial). An estimated 2.9 million boomer-owned businesses will transition by 2035.

These owners form the decision to sell years before they call a banker — and many never will, because a public process is a filter most don’t clear and a risk most don’t want. A founder weighing the sale of their life’s work rarely wants it known publicly: not to employees, not to competitors, not to customers. The seller is visible early to anyone already in the conversation, and invisible to everyone waiting on the list.

5What a sharp buyer — or seller — does now

1. Buyers: build origination, not just capital. Dry powder is not an edge when everyone has it. Proprietary flow is the only durable one.
2. Underwrite the auction premium explicitly. Assume 15–20% over a proprietary anchor the moment you enter a marketed process, and decide whether the asset justifies it before you’re emotionally in the fight.
3. Sellers: treat the public process as a filter you may not clear. More than 70% don’t. A quiet, matched conversation protects you from a failed sale that your employees and competitors watched happen.
4. Define the box before anyone is in a room. Revenue band, sector, geography, structure. Vague criteria produce auctions; precise criteria produce matches.
5. Time to the trigger, not the tombstone. Retirements, succession gaps, and growth ceilings are visible years early. Being in the conversation then is worth more than winning the one that starts too late.
6. Protect the relationship layer. The right buyer for a founder-owned business is a fit decision, not a price decision — and fit is sourced, not bid.

That is the whole trade. On the list, everyone is early to nothing. Off it, one party was early to everything — a specific seller forming, matched to a specific buyer’s box, before either was in a process. My work is being in that conversation while it is still a conversation.

— Ivan Smojver, Cerebra. On why the deals worth doing are the ones that never get marketed.