SMID Cap Focus Point: What‘s the deal with M&A- mid-year update

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SMID Cap Focus Point

What’s the deal with M&A- mid-year

update

Small Cap

M&A: strong 1H; signs point to continued 2H momentum

31 July 2026

After 2025’s M&A surge (most deals since 2000), 1H US M&A remained strong (~125

deals), on track for the 2nd best year since 2015 if the pace continues in 2H. While most

targets remain small caps despite investor bullishness that a Republican sweep and FTC

chair replacement could unlock larger deals, mid-cap deals are picking up (17% of deals,

highest since 2020) and aggregate deal value (annualized) is the highest since 2015.

Take-privates have ticked down but remain elevated (37% of deals YTD). Most macro

factors correlated with M&A remain supportive (healthy GDP growth & market returns,

tight credit spreads, cheap relative valuations for small vs. large caps). Our Banks team’s

proprietary M&A Monitor (see Banks note) also points to a continued pick up.

Small/Mid Cap Research

United States

But higher rates are weighing on credit-driven M&A

Neha Khoda

Credit Strategist

BofAS

In contrast, amid rising interest rates, our credit strategists’ M&A sentiment tracker has

turned negative for the first time since mid-2024. Our Banks team also notes that

sentiment (biz cycle sentiment/CEO confidence) is the key area of their tracker flashing

red. With higher oil prices/sticky inflation leading the market to price in hikes over the

next 12m, our credit strategists note this will hinder M&A in addition to dissuading

refinancings. They recently lowered their M&A/LBO-related issuance forecast in HY,

though in IG they expected continued strong M&A-related supply in 2H. Our data on LBO

activity suggests a drop-off in LBOs YTD to well below the historical average. And in

Converts (CBs), our strategist notes suppressed M&A amid the capex boom.

Strong Health Care deal activity slated to continue

Health Care (Biotech) dominates deals YTD (with activity tracking just below last year’s

records), where the M&A comeback has improved sector sentiment. Our Biotech team

sees more to come, with large pharma citing strong balance sheets and appetite for

business development as >20 blockbuster drugs go off-patent by 2030 (see Biotech

…