Mergers and acquisitions (M&A) activity is forecast to rise in the middle market as private equity firms show increasing confidence in their decision-making capabilities. According to a recent survey by Citizens Financial, executives at private equity firms and mid-sized companies are optimistic about M&A prospects in 2026, driven by strong economic growth, declining interest rates, and attractive valuations in key sectors.
Survey Results and Market Outlook
The Citizens Financial survey of approximately 400 businesses revealed that 58% of executives in the middle market expect M&A activity to increase over the next year. Notably, 86% of private equity firms expressed confidence in their ability to make successful M&A decisions, a significant increase from 48% earlier in the year.
Jason Wallace, Citizens’ head of M&A, cited the anticipated rise in economic growth and favorable conditions such as interest rate cuts and favorable valuations as key factors fueling optimism. As these conditions align, M&A deals are expected to become a prominent feature of the corporate landscape in 2026.
Key Sectors Driving M&A Activity
Several industries are expected to drive M&A transactions, with technology, media, telecommunications, financial services, and real estate emerging as primary sectors of focus. A substantial number of private equity firms, 39% according to the survey, have identified artificial intelligence (AI) companies and assets as potential targets for M&A activity.
The survey also highlighted the growing interest in wealth management and the financial services sector, with many deals related to this area in the past year. The rise of technology-driven sectors, including AI and telecommunications, is poised to accelerate M&A opportunities.
The Role of Private Equity in Middle Market M&A
Private equity firms are becoming more engaged in the M&A space, as evidenced by the surge in confidence among executives surveyed. In the final quarter of 2025, nearly 90% of private equity executives were actively involved in decision-making processes related to M&A deals. This growing interest is particularly evident in sectors with high growth potential, such as AI and emerging technologies.
Challenges and Opportunities Ahead
Despite the optimism, private equity firms are aware of the challenges that come with navigating the current economic climate. These include the impact of rising inflation and potential geopolitical risks. However, the survey respondents remain confident that these risks will not overshadow the opportunities in the middle market.
Many private equity firms are targeting deals in the second quarter of 2026, prior to potential uncertainties introduced by the U.S. midterm elections.
As economic conditions improve and interest rates decline, private equity firms are expected to play a pivotal role in driving M&A activity within the middle market. With key sectors such as technology and financial services emerging as top targets, 2026 promises to be a significant year for M&A deals.
