With so much uncertainty permeating the broader economy, and the industrial sector, in particular, it shouldn’t be surprising to see companies thinking twice about making major expenditures — such as acquiring another business.
Christen Paras, a partner at MiddleGround Capital who leads the private equity firm’s exit and capital market functions, says that merger and acquisition activity in the industrial segment is broadly flat this year, and that deals in the seemingly always-consolidating distribution sector are down “considerably” compared to 2024.
Still, opportunities are around for those that are able to capitalize on them: the industrial M&A market, Paras says, is seeing improvement after a subdued start to 2025, and acquisitions, as always, can be a way for distributors to bolster revenue numbers in an environment of otherwise sluggish organic growth.
Paras recently answered questions from ID about the current state of the M&A market — and what to expect as the industry looks toward 2026.
This interview has been lightly edited for length and clarity.
Industrial Distribution: How would you characterize the current state of the industrial M&A market?
Christen Paras: We’re seeing a modestly improving industrial M&A market after a period of subdued activity in the first half of the year. While overall industrials deal volume and value remains below pre-2022 levels, hot spots like power, data centers and defense are commanding premium valuations. Across most other verticals, there is considerable disparity in the quality of assets coming to market, with a subset of high-growth and high-performing companies garnering strong competition. That said, most of the industrials landscape is performing flat to slightly up or down from 2024 levels. Industrials services M&A has been most active, with more manufacturing deals materializing over the second half of the year. Within distribution specifically, M&A has been sluggish following the post-COVID pop of activity and is down considerably relative to last year. We have seen those broader market trends mirrored in our own pipeline.
ID: How are tariffs and trade uncertainty affecting how companies are approaching M&A?
CP: In general, tariffs and trade uncertainty have impacted distribution companies more than many domestic manufacturers. While many distributors have taken re-sourcing and pricing actions where possible, the current environment has led customers to change their purchasing behavior, making it more difficult for distribution companies to forecast demand throughout the year. With hard-to-predict topline softness, inventory management and cash flow can become key focus areas, and the bar for M&A may be high for some.
That said, distribution companies in a position to make acquisitions have been more aggressive on M&A to augment lackluster organic growth. Targets that are relatively insulated from tariff impacts and that have market-leading positions, diverse customer bases, and high proportions of recurring revenues are particularly attractive.
ID: What opportunities are there in the M&A market despite any headwinds?
CP: We see opportunities to provide solutions for founder- and family-owned businesses looking for partnership or a full exit. It has been difficult for many of those owners to navigate COVID, trade uncertainty and succession planning, and a partner like MiddleGround can serve as a steward of their legacy or provide support through this challenging multi-year period. We continue to find compelling opportunities in industrial businesses that can benefit from automation, improved processes and upgraded technologies, which may be further advanced through acquisitions.
ID: What do you expect as far as broad M&A trends, if any, as we head into 2026?
CP: We hope for a stronger and more active deal environment in 2026. Interest rates have trended lower, private equity dry powder remains at record levels while hold times continue to increase, and corporations are sitting on substantial cash reserves — all of which could contribute to increased M&A activity. Bankers have been pointing to the growing backlog of industrial deals for two years now, but a wave of activity just hasn’t yet materialized in a substantial way, even with this backdrop. With the Purchasing Managers’ Index hovering below 50 for the bulk of the past two years, factors like tariffs and economic uncertainty have certainly complicated the outlook for industrials. As those policies have started to settle, we are starting to see green shoots on the deal front. Further, macro trends of reshoring, automation and infrastructure investment represent structural shifts that will define the next growth cycle, the acceleration of which we are observing today. Industrial investment opportunities will continue to grow over the long term.
This article originally appeared in the November/December issue of Industrial Distribution magazine. Sign up here to subscribe to ID’s Today in Industrial Distribution daily newsletter.
