Last year was a lopsided one for merger and acquisition activity, but industry insiders expect that to change.
For some insight on how interest rates, tariffs and the stockpile of “A assets” could herald a banner year for deals, ID spoke with Joe Wagner. Wagner is managing director at PMCF, a U.S.-registered broker/dealer and investment bank providing M&A services to companies throughout the Americas, Europe and Asia – including to many distributors.
Industrial Distribution: What did you see in 2025 as it pertains to industry M&A activity and how does that translate into your expectations for 2026?
Once “Liberation Day” hit in early April, that really put a significant pause on transactions. It didn’t kill transactions, but with the uncertainty that came with the supply chain and pricing structure inherent in the tariffs, the M&A markets certainly slowed.
We started to see a fairly significant uptick in activity and general optimism in Q4. It really was almost a dumbbell effect, where the beginning and end were very robust and the middle was pretty thin with activity.
I think Q4 was really driven by a couple things. One, interest rates ratcheted down. And that has continued to happen. The Fed has made several adjustments to the Fed funds rate and that creates a more attractive financing environment for transactions.
And then, the rise of the mega deal this year was pretty significant. The MRC and DNOW transaction was a big one. United Flow Technologies recently announced their sale to Berkshire. Those large transactions, [by showing] that mega deals still were taking place, drove significant interest and momentum for the middle market.
And when you combine that with the interest rate environment, we actually think ‘26 is going to be, if not a record year, it’ll be very active and strong from an M&A perspective.
I think that the tariff stuff, the uncertainty there, was the big driver in 25% of the softness [in 2025]. But in 2026, with that uncertainty gone, the amount of capital that’s on the sidelines with private equity is meaningful.
And then, you couple that with larger strategic buyers whose organic growth profile maybe is a bit tepid and they’re looking to acquisitions to bolster their growth prospects and dynamics with stronger balance sheets because they have more capital to put to work. So we see an environment where both strategic and financial buyers are primed to deploy their capital fairly aggressively.
ID: What can you tell us about industry valuations?
JW: I’d say the valuation multiples still remain very healthy. In fact, a couple of the deals I just mentioned, particularly the UFT deal, had very strong multiples, and so that portends the supply of sellers increasing in ‘26. So we have a nice dynamic where more businesses are coming to market, there are a lot of buyers on the sidelines, and so we just expect more transactions.
ID: It’s our understanding that, in 2025, there was a lot of interest in these “grade A” type deals and very little interest in deals that you might consider to be less attractive. Did you see that as well and do you see that as a potential market condition going forward?
JW: Absolutely. If you think about a grading scale – A, B, C – the “A” assets have been active and they’re getting tremendous interest. In fact, with our firm, most of the businesses we work with would fall in that category: really nice businesses and good deals oversubscribed with interest from buyers, both financial and strategic. And those are continuing to get really nice valuation multiples and they’re closing their transactions.
And, by the way, one of the attributes of an “A” asset is the ability to withstand all this tariff uncertainty. And so, if we can show that they’re able to either pass through the prices or they have enough scale where they can mitigate the price increase, that creates more interest in the market. So it kind of makes sense that they’re going to get more value and more interest from the market. “B” assets can still trade, certainly, but they’re going to definitely be impacted from a valuation perspective. And so, because the sellers usually aren’t interested in taking those discounts, those don’t transact as much.
And then, “C” assets, we’re not seeing them. They’re either not hitting the market or, if they are getting to the market, they’re busted processes. I actually think that dynamic will continue next year. I don’t see a “C” asset trading at attractive multiples next year. What I see happening is more “A” assets and “B-plus” assets hitting the market. I think a lot of those have sat on the sidelines with this uncertainty.
ID: Is there a type of distributor in the industrial space that you see as more fitting to this “grade A” characterization? And I ask that because you mentioned proving that these businesses can pass through the pricing hit to the end customer. Are there certain product categories that appear to be more successful at absorbing that tariff hit or passing that tariff hit along?
JW: The first thing that comes to mind for me would be a distributor that has a service element to their business. So they’re not strictly reliant on just a product pass-through or supplying a piece of inventory. If you think about flow control, for example, that’s an industry that continues to be very active on the M&A side — lots of consolidation, still very fragmented. And a lot of the leading distributors in flow control have a service and repair arm which is higher margin, more recurring business, less impacted or not impacted by tariffs, and higher growth. If it’s purely a commodity product inventory play, that’s where you see some more exposure to the tariff dynamic.
ID: I also wanted to ask you about the uncertainty that influenced deal volume in Q2 and Q3 of 2025. Do you expect to see that ebb and flow at all in 2026 as changes come to the tariff situation?
JW: Definitely. The winds of Washington can change tomorrow and that’s always been the case. So that’s not unique or necessarily new, but we saw it within ‘25 and certainly that risk is there. I think what’s different is there was this big shock in April of ‘25 with global trade policy that changed overnight and folks have now adjusted to that. And so the ability to adjust with any future changes will be less impactful in a negative direction. There’s still uncertainty, but businesses are sort of getting used to handling it and navigating it, which reduces the uncertainty, ultimately. So yeah, it is still a factor, but not as big of a factor as last year.
ID: Lastly, if there are distributors reading this and they’re looking at 2026 and maybe wanting to take advantage of some of the opportunities available, whether that be exiting the market at an opportune time or looking at a potential deal to bolster their operation, is there any advice that you could give to those companies in terms of what they should be doing now to prepare to take advantage?
JW: Number one, it’s never too early to start having conversations with an investment banker. If there’s an interest in selling the business, start those conversations now and get things teed up and ready. The market is setting up nicely for buyers to be aggressive, and so things like margin performance, gross margin, specifically retention of customers and recurrence of revenue streams — getting a data-driven story there is really important.
The other piece that I think is important is the management team and executive team of these businesses that are getting ready to sell. It’s understanding who’s involved in that process, aligning them on the messaging points and the cadence, and getting them to buy into the process is always important. Those are higher-level things that are important to navigate.
Contact PMCF Managing Director Joe Wagner at [email protected]. To learn more about PMCF Investment Banking’s distribution experience, visit pmcf.com/industry-expertise/industrials/distribution.
This article originally appeared in the January/February issue of Industrial Distribution magazine. Sign up here to subscribe to ID’s Today in Industrial Distribution daily newsletter.
