When Forbes recently examined the growing trend of millennials acquiring blue-collar businesses, it highlighted a shift that has been building across the lower middle market for years. Manufacturing companies, HVAC contractors, industrial service providers and other essential businesses have become some of the most sought-after acquisition targets as younger entrepreneurs pursue businesses with predictable cash flow, recurring customers and durable demand. We were pleased to contribute to that discussion because it reflects exactly what we're seeing in today's M&A market.
Many of these buyers are not traditional entrepreneurs learning through trial and error. Increasingly, they arrive after spending years inside private equity firms, investment banks, corporate development teams and large operating companies, where they have seen firsthand how acquisitions are sourced, financed and integrated. Others come through leading MBA programs that have embraced entrepreneurship through acquisition as an alternative to founding a startup. Rather than spending decades climbing the corporate ladder, they are raising investor capital, acquiring profitable businesses and stepping into the role of owner-operator much earlier in their careers.
That experience matters because it shapes how they evaluate opportunities. These buyers are not simply searching for businesses they believe they can manage. They are looking for businesses they believe can compound value over many years through disciplined operations, thoughtful capital allocation and strategic growth.
As Chelsea Mandel, Founder and Managing Director of Ascension Advisory, noted in the Forbes article, today's buyers "want to buy a business that's a machine that can run itself. They don't want to buy a job." It is a simple observation, but it explains much of what is driving today's acquisition market. Buyers are increasingly prioritising businesses with documented processes, transferable customer relationships, experienced management teams and recurring revenue over founder-dependent operations that cannot easily scale beyond the original owner.
What has received far less attention, however, is how these same buyers are financing those acquisitions.
For decades, acquisition financing has followed a familiar formula. Senior debt finances a portion of the purchase price, investors contribute equity and, where appropriate, seller financing or an earnout bridges any valuation gap. While those components remain the foundation of most transactions, many sophisticated buyers no longer view the capital stack as fixed. Instead, they examine every asset within the transaction to determine whether capital can be deployed more efficiently.
That perspective reflects lessons many of these buyers learned inside institutional investing. Private equity firms rarely think only about acquiring a business. They think about capital efficiency, return on invested capital and the highest and best use of every pound or dollar deployed. Increasingly, that mindset is making its way into lower middle market acquisitions as former investors become business owners themselves.
One of the most overlooked opportunities often sits on the balance sheet.
Many manufacturing businesses, industrial companies and specialty contractors own the facilities from which they operate. In many cases, those properties were acquired decades ago, long before commercial real estate appreciated to today's values. Historically, buyers purchased the business and the real estate together because that was simply how transactions had always been structured.
Today, many buyers are asking a different question.
Should the operating business own the building at all?
When appropriate, a sale leaseback executed alongside an acquisition can unlock capital tied up in the real estate while allowing the business to continue operating from the same facility under a long-term lease. Employees continue reporting to work. Customers experience no disruption. Production remains uninterrupted. The difference is not operational. It is financial.
Rather than requiring additional equity to acquire both the business and its real estate, buyers can often separate those assets and finance them differently. Capital that would otherwise remain invested in bricks and mortar can instead be allocated toward expanding production capacity, investing in equipment, funding acquisitions, hiring employees or strengthening working capital. The operating company continues to create enterprise value while the real estate becomes a source of acquisition capital.
This is not simply about reducing the amount of equity invested. It is about improving the efficiency of that equity.
Sophisticated buyers understand that returns are influenced long before operational improvements begin. Two buyers may acquire the same business at the same valuation, yet generate materially different outcomes because one structured the acquisition more efficiently than the other. Purchase price certainly matters, but so does how the transaction is financed. Capital allocation begins on day one, not after closing.
This trend is particularly relevant in the industries highlighted by Forbes. Manufacturing, HVAC, industrial services and specialty contracting businesses possess many of the characteristics sophisticated buyers seek. They generate recurring demand, serve specialised markets and often operate from facilities that have become valuable assets in their own right. For the right transaction, separating the operating company from the underlying real estate can improve flexibility while preserving the continuity that makes these businesses attractive in the first place.
That does not mean every acquisition should include a sale leaseback. Some companies are better served retaining ownership of their facilities, while others lease their real estate or own properties that are not attractive to institutional investors. The broader point is that sophisticated buyers no longer assume there is only one way to finance an acquisition. They evaluate every available source of capital before deciding how the transaction should be structured.
The lower middle market continues to become more competitive. Search funds have matured. Independent sponsors have proliferated. Family offices continue moving downstream. More capital is chasing the same pool of high-quality businesses, making incremental advantages increasingly valuable. In that environment, buyers are recognising that winning a deal is no longer solely about paying the highest price. It is about structuring the most efficient transaction.
Chelsea Mandel's observation that buyers want "a business that's a machine that can run itself" extends beyond the operating company itself. Increasingly, the acquisition should function with the same discipline. Every asset should serve a purpose. Every dollar of capital should be intentionally deployed. Every financing decision should contribute to long-term value creation.
The first generation of entrepreneurship-through-acquisition investors demonstrated that buying an established business could be a compelling alternative to building one from scratch. The next generation is demonstrating something equally important: in an increasingly competitive market, how you finance an acquisition may become just as important as which business you choose to buy.