Market Analysis
Methodology, trends, and factors influencing 2025 valuations.
01. Methodology
This report aggregates data from four primary sources active in the lower-middle market M&A space: First Page Sage, Aventis Advisors, Raincatcher, and Peak Business Valuation. Data points represent transactions and valuations from Q4 2024 through Q1 2025.
The multiples presented are for EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which serves as the standard proxy for operating cash flow in service-based business valuations. Ranges account for variations in:
- Size Premium: Larger firms ($5M+ EBITDA) typically command 1.5x-3.0x higher multiples than smaller peers.
- Growth Rate: Companies with >20% YoY growth see valuations at the top end of the range.
- Recurring Revenue: High percentages of recurring revenue (vs. project-based) significantly de-risk the asset, increasing the multiple.
02. 2025 Market Trends
The "Flight to Quality"
Private equity buyers have become more selective in 2025. While capital is available, it is chasing fewer, higher-quality assets. "A-grade" service businesses are seeing multiple expansion, while "B-grade" assets are seeing flat or compressing valuations compared to 2023.
Strategic Consolidation
Strategic buyers (competitors) are currently outbidding financial buyers (PE) in sectors like Landscaping and MSPs, driven by the need to acquire talent and expand geographic footprints in a labor-constrained market.
Valuation Drivers
- +Recurring Revenue > 70%
- +EBITDA Margins > 20%
- +Low Customer Concentration
- -Owner Dependence
- -Project-Based Revenue
Analyst Note
"The gap between 'platform' assets and 'add-on' targets has widened. A $2M EBITDA consulting firm might trade at 6x, while a $10M EBITDA firm in the same niche trades at 12x. Scale is the single biggest driver of multiple arbitrage in 2025."