Arizona Dealmakers Transition from Rapid Expansion to Operational Stability

Arizona’s dealmaking isn’t slowing down — it’s maturing.

Observers are noticing the change: previously rushed mergers and acquisitions have softened into a more cautious approach. Buyers are becoming more analytical and focusing on how businesses actually operate. Growth still matters, but it no longer overshadows the importance of fundamentals. In a higher-rate environment, operational strength has become the new benchmark of credibility.

The shift isn’t subtle, according to ACG Arizona members Vincent Burke, UMB’s senior vice president of commercial banking, and Adam Fullerton, senior director and head of sponsor finance–general industries at Western Alliance Bank.

Burke says that before 2022, deals were defined by cheap capital and overambition.

“There was a time when the market rewarded speed above almost everything else,” he says. “If you could grow quickly, raise capital fast, or build a platform that looked impressive on paper, buyers were willing to take big risks.”

Founders were encouraged to focus on top-line growth, sometimes at the cost of operational discipline. In turn, private equity firms competed fiercely for deals, often using leverage to increase returns.

Changing landscape

However, the landscape has shifted. Interest rates are elevated. Valuations have adjusted. And buyers — whether strategic or financial — are no longer convinced by growth for its own sake.

“The days of chasing aggressive top-line growth are giving way to a focus on operational excellence,” Burke says. “Buyers want businesses that run well, not just grow fast.”

Fullerton observes the same trend in how deals are being organized. The structure of the capital stack itself illustrates this shift.

“We’re seeing much more conservative capital structures across the board,” he explains. “Lower leverage at close, higher equity contributions, and increased use of seller notes, earn-outs and rollover equity to bridge valuation gaps.”

He calls it a move toward “discipline over leverage,” a phrase that captures the new mindset shaping Arizona’s middle market.

Often, this focus appears in the first management meeting, when buyers evaluate operational processes, leadership depth and financial controls. During the planning phase, buyers seek to understand not only how a company has grown, but how it will continue to grow in a more selective environment.

“Quality of earnings is under a microscope,” Burke says. “If a company can’t demonstrate efficiency and scalability, it’s going to struggle to stand out.”

That reflects a broader shift in what buyers consider essential. Recurring revenue, margin stability, cost-pass-through ability and working-capital discipline — particularly regarding accounts receivable and inventory — are critical to underwriting.

Fullerton notes that buyers are evaluating these metrics more holistically rather than individually.

“Management depth has become a key factor in forming conviction,” he says. “Buyers want confidence that the business can operate and grow beyond the founder.”

Arizona isn’t the only state seeing this heightened focus on operational strength, but it’s particularly visible here because of the state’s rapid growth over the past decade. As new industries take root and founder-led businesses mature, the market has reached a point where buyers expect more than potential. They want proof — and if it isn’t there, they’re willing to walk away.

Still, capital remains available.

“The market remains open,” Fullerton says. “It’s just more discerning about where capital goes and on what terms.”

Lenders get selective

Traditional lenders are more selective, but private credit continues to keep deals moving. Burke agrees.

“It’s changing how deals get done, not stopping them,” he says.

The increase in add-on acquisitions signals the market’s shift. Instead of pursuing large platform deals, buyers are focusing on expanding companies they already own.

“Add-ons are where the action is,” Burke says. “They let buyers strengthen existing platforms with targeted capabilities, and the integration path is much clearer.”

Fullerton notes that valuation pressure is accelerating this trend. When incremental EBITDA rolls into a larger platform, it often receives a higher blended multiple, making add-ons more attractive than standalone acquisitions.

Corporate carve-outs are also gaining momentum as companies reevaluate their core operations, spinning off divisions that no longer align with their strategies. These deals can be complex — requiring careful planning, transitional services and operational expertise — but they also present significant opportunity.

“Buyers are increasingly willing to take on the complexity because the upside is real,” Burke says.

Sellers, for their part, are adapting. Fullerton says the most sophisticated sellers are preparing differently. They present detailed projections and demonstrate execution — showing how previous acquisitions were integrated, how synergies were achieved and how margins improved. Many are also prioritizing succession planning earlier, building independent management teams and aligning incentives well before going to market.

Burke says preparation is now one of the biggest factors separating successful deals from stalled ones.

“The winners are the ones who come prepared and can show a clear path to integration and margin improvement,” he says.

Clean books, documented processes and a realistic transition plan can materially improve both valuation and deal certainty.

Market remains active

Despite the more selective environment, Arizona remains highly active. Burke highlights strong deal flow among founder-led companies preparing for succession, industrial and business services firms with operational improvement potential, healthcare and specialty services companies with recurring revenue, and tech-enabled businesses with loyal customers and scalable systems.

Fullerton sees similar momentum in essential home services such as HVAC, plumbing and pest control, as well as healthcare-adjacent services supported by demographic demand.

What’s fading are more discretionary categories — solar, swimming pools and home cleaning — where demand can fluctuate with economic conditions. Buyers are drawing a clearer line between essential and non-essential services.

Margin-focused strategies are also gaining traction. As valuations become harder to justify for standalone platforms, both founders and private equity-backed companies are leaning more heavily on operational improvements and cost synergies to generate returns.

“Add-ons allow buyers to deploy capital with lower execution risk, drive margin expansion through synergies and control the timing of value creation,” Fullerton says.

Both experts agree that Arizona’s middle-market M&A environment isn’t slowing down — it’s evolving. The shift from aggressive growth strategies to operational optimization reflects a market becoming more strategic, disciplined and focused on long-term value.

“Deals are absolutely still happening,” Burke says. “But the companies that thrive will be those that understand their operations and clearly identify where value will come from.”

Fullerton echoes the sentiment.

“The market remains open,” he says. “It’s just more discerning about where capital goes and on what terms.”

This article was originally published in AZ Big Media by Christina Fuoco-Karasinski and is republished here with permission. You can view the original version here.