Deal success hinges on seller’s ability to prove sustainable performance
Executive summary
As mid-market M&A activity is expected to rise, buyers are placing greater scrutiny on whether sellers can prove that their past performance is repeatable. New Grant Thornton International survey data shows that the quality and completeness of target financials is the top barrier to completing deals. Sellers that connect financial performance to durable commercial drivers can build buyer confidence earlier and improve deal certainty.
Midmarket M&A activity is set to expand, according to new Grant Thornton International survey data, but a significant obstacle is standing in the way.
More than half (52%) of U.S. respondents to the International Business Report (IBR) survey for Q1 identified the quality or completeness of target financials as a barrier to completing deals in the current environment. There were 185 U.S. respondents with annual revenue ranging from $100 million to $4 billion in the international survey of business leaders.
Target financials are always closely evaluated, but they’re scrutinized differently under the dynamics of the current M&A environment, from geopolitical instability to the rapid scaling of AI across industries.
“In an uncertain environment, there’s just less tolerance for ambiguity,” said Palash Misra, Partner at Grant Thornton | Stax. “A target’s financials help unpack and verify the past, but ultimately, buyers are underwriting future performance.”
For sellers, the implication is clear that historical financials are no longer enough. Buyers want to understand what drove the numbers, how visible those drivers are across the business (e.g., by product, service or customer segment), and whether they can reasonably continue through the next investment hold period.
“If buyers can’t get conviction on the financials and what’s driving them, it’s difficult for them to get real interest in the deal,” Misra said.
The challenge is especially pronounced in industries where AI is changing how buyers assess the durability of revenue. For example, in sectors such as software and services, buyers are looking beyond a company’s historical performance and pressure-testing whether the same sources of growth will remain defensible as AI reshapes workflows, customer needs and delivery models.
Industry insights: Tech and professional services
AI is changing how buyers test durability
In the software industry, AI’s proliferation is prompting buyers to scrutinize whether the sources of a company’s historical growth can be sustained. Buyers are asking whether an investment target remains mission-critical to customers, whether it can be disrupted as a system of record and to what extent the business can evolve into a more embedded system of action or orchestration.
“There’s a fundamental question about what serves as a company’s system of record, and whether AI and new competitive solutions have the potential to disrupt both that system and the data it manages,” Misra said.
For professional and tech-enabled services businesses, the AI diligence question is different, but related. Buyers are assessing not only which parts of delivery can be automated, but whether AI could change the economics of the offering itself, by enabling clients to bring work in-house, substitute software or lower-cost providers, or materially compress engagement scope and fees.
AI usage is most defensible in areas where providers remain central to the client relationship and the work depends on specialized expertise, implementation complexity, regulatory requirements, proprietary data or accountability for outcomes. For firms with those characteristics, AI can become a margin-expansion lever rather than a revenue-disruption risk.
In both industries, the issue is not simply whether AI creates risk, but whether the target company can show that its revenue model, customer value proposition and growth drivers will remain durable as AI reshapes how work gets done.
When outside parties lack confidence in a target’s financials, the effects can ripple across the transaction process:
- Uncertainty around earnings quality can widen valuation ranges and push buyers toward more conservative pricing.
- Buyers might require more extensive diligence, slowing the timeline and increasing transaction costs. They might also seek additional structural protections such as contingent considerations.
- Debt financing options may be harder to secure or come with less favorable terms.
In turn, these concerns about a target’s financials often compound other barriers to completing deals. Other key buyer concerns include valuation gaps (46%) between buyers and sellers, while 42% cited the length or complexity of due diligence.
“When financials are incomplete or difficult to validate, we tend to see more staging in the process. Buyers often slow the process, add diligence steps and create more checkpoints before they can give investment committees confidence in the deal,” Misra said. “That ultimately requires more conviction from a deal team to get a transaction across the finish line.”
The timing is important. Eighty-four percent of the U.S. IBR respondents expect midmarket M&A activity to increase over the next 12 months, with 28% predicting a significant rise in deals.
Respondents’ top strategic objectives for pursuing M&A over the next year are strengthening their competitive position (62%), acquiring new capabilities or technology (61%) and expanding into new markets (59%). Achieving those goals, however, increasingly depends on buyers’ confidence that a target’s growth can be sustained through the first years of ownership.
How sellers can demonstrate repeatable growth through strategic diligence
Buyers today are placing far more weight on what happens next, particularly over the near- and mid-term, rather than on growth opportunities that may take longer to materialize.
“One shift we’re seeing on the buyer side is they’re focusing much more on near-and mid-term repeatable growth, rather than longer-term expansion opportunities,” Misra said. “In the past, buyers were more willing to lean into longer-dated growth narratives. Today, buyers are prioritizing de‑risking that near‑ to mid-term period, getting comfortable with how the business performs, what drives that performance and why it can continue to perform through the hold period.”
For sellers, deal preparedness starts with making the business easy for buyers to understand: what’s driving performance, how those drivers connect across the business and why they’re sustainable. That’s where financial and commercial diligence come together.
“Financials establish the baseline, but commercial diligence validates whether those performance drivers can hold up as the market evolves, whether through competitive pressures or changes in buying behavior,” Misra said.
Sellers that make those connections early can proactively shape how buyers think about their business and develop confidence earlier in the process. That can improve deal certainty, support valuation expectations and preserve momentum as diligence progresses.
The sellers seeing the strongest outcomes today are no longer treating diligence as a check-the-box exercise. They are using it as a strategic readiness tool to pressure-test their business and value proposition, validate the growth story, refine their understanding of the market and build buyer confidence before a formal transaction begins.
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