Industrial manufacturing has been one of the more active corners of the broader M&A market this year. Ryan McComb, our Managing Director, sat down for a midyear check-in on the trends shaping the back half of 2026.

Q: What are you seeing in the market right now?

The year started slower than we’d hoped, following a quiet end to 2025. Since then, deal activity has picked back up, with more quality opportunities coming to market and a healthy pipeline of pitches moving through the banks we work with. We see that as a sign of a market that’s continuing to normalize, even if unevenly.

Q: Which subsectors are you watching most closely right now?

General industrial assets have been harder to find. Infrastructure, particularly power distribution supporting data centers and renewables, has stayed strong, and those subsectors are commanding high multiples, in part because other pockets of industrials have softened. We’ve been priced out of some of these situations because we’re not willing to chase multiples that don’t make sense to us. Firms sitting on capital they haven’t deployed in years may be facing pressure from their own investors, and that may push some of them toward pricing we don’t think is justified. We’ve chosen to stay disciplined instead.

Aerospace and defense valuations have also been climbing, and we expect more assets to come to market in both North America and Europe as that trend continues, partly a function of the broader geopolitical environment.

Q: What about commodities and input costs?

We haven’t seen freight rates move meaningfully yet, though there’s usually a lag before they do. Aluminum is a different story. A meaningful share of global supply originates in the Middle East, and disruptions there have created real, sustained upward pressure on price. That’s strengthened the case for domestic and diversified sourcing.

Q: How are you positioning portfolio companies given all of this?

We’re looking harder at supply chains and working proactively to line up alternate sources. Where input costs rise, like aluminum, our view is that portfolio companies should pass those increases through to customers promptly rather than waiting. So far, we haven’t seen meaningful pushback from customers on that, and most customers haven’t started drawing down existing inventory to hedge against further increases, but this is a pattern we’ve seen in past cycles. We’re observing the situation closely.

Q: Are there sectors you’re more cautious on right now?

Automotive aftermarket and the EV market have both been flat. Our view is that EV adoption is still coming, and that what we’re seeing now is a pause rather than a reversal. Should our view be right, it creates an opportunity: businesses that built themselves around rapid EV growth and are now struggling can be attractive acquisition targets for a firm that isn’t giving up on the space. More broadly, we’d characterize this stretch as an industrial slowdown.

Q: What’s MiddleGround’s view on AI and automation?

We don’t invest in software, which has been affected significantly by the shift to AI, but the ripple effects reach into industrials too. One risk we’re watching is private credit funds with software-heavy portfolios facing redemption pressure from their own liquidity providers; if a note maturity were coming due with one of those funds, we might see less willingness to extend.

Internally, we think of ourselves as early adopters of these tools relative to our portfolio companies, most of which are still catching up, as are most management companies broadly. As one example, instead of a team manually running a pricing analysis, the first pass can largely be handled by an AI tool.

On automation more specifically, we’ve been pushing our portfolio companies toward it for some time. What’s changed is that we can now underwrite automation opportunities into deals at the point of investment, given our expectation that labor availability will continue to tighten. One constraint is that there aren’t many automation-focused businesses at the scale we target.

Q: What’s the overall takeaway heading into the second half of the year?

Discipline is the throughline. We’re staying selective on price, leaning into sectors where we see durable tailwinds like infrastructure and aerospace, and continuing to push automation into our portfolio companies rather than waiting for the broader market to force the issue. We believe the businesses that come out ahead in this environment will be the ones that adapted early, whether that’s diversifying supply chains, investing in automation, or simply not overpaying to chase a deal.

*This post is for informational purposes only and does not constitute advice, a recommendation, or an offer to sell or solicit any security or financial product. Inherent in any investment is the risk of loss.