Q&A . . . With Rex Reinhardt

PUBLISHED MARCH 2026

Q: What’s your take on the overall state of regional M&A, looking back at 2025 and where we stand at this point?
A: We’ve definitely seen things at an all-time high, and day in, day out, a solid deal flow. We are seeing some restricted behavior from lenders: tightening up a bit and being more choosy. And then navigating higher interest rates, which haven’t changed too much for a while now. We are having to get a bit savvier and more creative in structuring deals at times. But we do see robust deal flow, have solid flow going now, and we’re seeing transactions go to the letter-of-intent stage, into due diligence with no problem, and get closed.

Q: What should be the next-year focus for owners, particularly Baby Boomers who are generating a lot of volume on the sell side?
A: Think in terms of Systems, Transition and Team. So, with Systems, get your accounting systems in order and near-perfect NOW. If you’re an inventory-intensive business or distributor, ensure that your inventory is managed to the day as best you can. Ensure that your costs and expenses are clean, and you can defend any and all add-backs when arriving at an Adjusted EBITDA. I’d also include ensuring that overall systems/practices/procedures are well documented, and that clean GAAP accounting is the top priority.

Q: What about the Transition piece?
A: Ensure that if you plan to transition out of the business, your “No. 2” or GM can lead the business with the new buyer/ownership moving forward. Use the 9-12 months to prepare that person and ensure it can be as seamless as possible. The key is to reduce owner involvement in day-to-day operations as you approach market entry. The less reliable the business owner is, the better. Succession planning is crucial.

Q: And Team? 
A: I would also recommend looking at a third-party valuation 9-12 months out to see where the market will stand, and if you really want to be thorough, a Q of E. Start building the whole team, not just the M&A/investment banker, but the deal attorney, the accountant, and the financial advisor are all important parts of maximizing exit value. Develop a post-closing plan. It’s a very emotional time for a founder/owner/operator and figuring out what they want to do post-closing is very important. You really don’t want to wait until after the closing to figure it out because that could lead to cold feet and blown deals.

Q: What’s the near-term hold for financing, interest rates, and positioning a company in this environment?
A: Look at working capital. Even just having the conversation and understanding how Net Working Capital will be calculated for a transaction is very helpful. The most crucial element of a transaction is that the business keeps running seamlessly and, hopefully, grows throughout the entire process. An owner could potentially improve the cash flow cycle by reducing the receivables period, thereby lowering the overall NWC peg, but only if it directly improves the business’s overall performance. As for debt, most transactions are typically cash-free/debt-free. Meaning the seller keeps 100 percent of cash and cash equivalents, but also owns the long-term debt. And with EBITDA addbacks, adjustments can be a big point of contention in due diligence. Any and all adjustments made will need to be supported and defended during that process. So, if you claim an adjustment of $200,000 per year for “personal expenses run through the business,” but all you have to produce is a company card with a bunch of Amazon charges, know that those will most likely not hold up, so plan accordingly at least a couple of years in advance. My recommendation: Just book those adjustments as taxable income for two years and completely eliminate all questions regarding validity, rather than trying to mitigate every possible dollar of tax liability.

Q: What about the short term for investors, where are you seeing activity?
A: The least is with any business that sources supplies or products from overseas. They have naturally had to navigate a more tedious past 12 months due to the tariffs. Manufacturing companies or distributors that source raw materials or inventory from foreign suppliers have likely been impacted by tariffs. Service businesses are seeing the most interest. We do a lot of work in the Home and Facility Services arena and are intentional and continuing to build in that area, partly because there’s less dependency on things “outside of your control”. Having owned a Fire Protection company myself for many years, I also see the allure of such businesses.

Q: What about for owners with longer time horizons, say 3-5 years?
A: We haven’t noticed a large discrepancy between Millennial/Gen-Z term sheets and those from more of the Baby Boomer generation. At least, not yet. What we have noticed is that buyers right now have to “play ball” with lender requirements, including standby notes. Also, the SBA rolled out new requirements in the summer of 2025 that definitely have impacted deals in that size range. I think it’s caused financial buyers across the spectrum to get more creative with structuring, and sellers to adopt an open mind. We do see the younger buyer universe asking questions such as how AI will impact the seller’s industry and other similar topics that perhaps didn’t apply to the older generation’s world.

Q: And for investors, particularly those assessing the impacts from workforce aging, immigration trends, or other factors?
A: I think the service businesses will continue to consolidate the fastest. We’re seeing PE consolidation in the Home and Facility Services world as never before, and we don’t expect it to stop. Those types of businesses avoid a lot of the issues that older-world companies face. And we’re seeing voracious consolidation. I’d add that, despite significant consolidation, these verticals remain heavily fragmented. When one mom-and-pop HVAC business gets bought by PE, another one seems to pop up in its place like clockwork.

Q: Let’s take a look at those with the longest time horizons before a sale, say, at least five years.
A: Well, first and foremost, the businesses that don’t utilize AI and automation will naturally fall behind those that do. Even your “ma and pa” HVAC company in your city needs to be using system automation and AI tools to increase efficiency, manage customer flow, and automate processes across the board. There are hundreds, if not thousands, of tools the everyday business owner in any industry can use today to get ahead of the AI and automation curve. And over the next 5-10-year window, the buy-side will continue to place an ever-greater premium on businesses that utilize AI. That said, this is one reason we believe the old-economy/blue-collar service business will continue to appreciate over the next 10 years. Robotics and AI seem a long way from replacing a plumber, HVAC tech, or general electrician.

Q: And for buyers looking that far down the road?
A: Buyers always love to see “American Made” or that your supply chain is 100 percent domestic, but that is just not a reality for a majority of industries. Raw materials simply can’t be sourced domestically very often. Still, if it is possible to start sourcing domestically and it wouldn’t create a significant negative delta in margins, then of course, pursue that option. Intellectual property is only as valuable as your ability to defend/protect it. For small businesses and probably a lot of lower middle-market businesses, this is not a reality when the company infringing is 20x your size. This is further complicated when the IPs are international and not domestic.

Q: Who’s best positioned to maximize organizational value?
A: We remain more bullish on asset-light and less capital-intensive service businesses than the older world, manufacturing and industrial sectors. We love manufacturing, but asset-light service businesses will probably outperform here. And, the opportunity to consolidate several fragmented industries.

Q: If you could give business owners and investors only one “north-star” metric or action today that would compound most powerfully across the one-year, three-to-five-year, and 10-year windows, what would it be?
A: If there is one ‘add-on’ I would advise any business owner today, regardless of a one, three, or 5-10-year window, it would be to find a way to build recurring revenue into their business. Truly recurring revenue is always valued higher than purely project-based revenue. I’d also add to build the best team you can. Your organizational chart is so important. The fewer ingredients in the cake, the more important each ingredient is. When you only have 20 employees, they each are critically important, so make sure they’re great. Make sure they’re happy, well-trained, and supported. In this market, buyers care more about the team that generates cash flow than the equipment in many cases.