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Over the last several months, we’ve spent a significant amount of time evaluating opportunities across software, services and industrials. Through active deal processes, diligence work and conversations with founders and bankers, a few things kept coming up.
In software, there’s clearly been a wave of AI positioning. Every deck we open mentions AI somewhere on page two. At this point, almost every company is presenting itself as an “AI company” in some form. The conversation has moved well beyond whether AI is part of the story and toward what’s actually defensible underneath it.
In diligence, that often comes down to factors like proprietary data, long standing customer relationships, deep domain expertise, or exposure to highly regulated markets where trust and execution matter. The key question now is less about short term excitement and more about whether these businesses can sustain value over the next 3-6 years as AI capabilities continue to rapidly evolve.
That dynamic is especially relevant in the lower middle market, where there’s still meaningful room for operational improvement, but where buyers have become much more disciplined around what constitutes a strong software business.
Services has probably been the most active area from what we’re seeing. Deal volume has remained strong, particularly in tech–enabled services and scalable, asset light models, consistent with PitchBook data showing deal volume up nearly 20% year-over-year in recent quarters. A major theme across many of these businesses is the opportunity to improve operational efficiency through better use of data, workflow automation and digitalization.
Interestingly, some of the most compelling opportunities are not necessarily businesses that were built as “tech companies” from day one, but traditional services businesses that are modernizing operations and using technology more intentionally to scale. The gap between companies that have adapted and those still operating with fragmented systems is becoming increasingly noticeable, particularly in margins, retention and growth rates.
Industrials have had a slower start to the year relatively speaking, but activity is picking up. A lot of that seems tied to tariff uncertainty, inflation risks, oil prices, input cost volatility and a broader wait and see approach from sellers. At the same time, there are still a large number of industrial businesses with specialized capabilities and long standing customer relationships across highly fragmented sectors and aging ownership bases. As conditions become more stable, many of those high quality businesses are gradually coming back to market.
Across all three sectors, the common thread is that buyers are becoming more selective. The businesses attracting the most attention tend to be the ones with strong fundamentals, defensible positioning, and clear opportunities to continue improving over time. As the market evolves, it’s becoming increasingly important to separate short term momentum from businesses with real long-term potential.
About Tideshift
Headquartered in Boston, Tideshift Capital Group is a private investment firm focused on acquiring and scaling lower middle-market businesses across software, services and industrials. The firm targets attractive opportunities in North America through buyouts, carve-outs and majority equity positions in companies in transition.
By blending decades of investment and operational experience, Tideshift is shifting investment dynamics to drive superior returns. Our approach is grounded in product-led growth, embedded data, AI capabilities and the expertise of our in-house Alpha team to create impact velocity.
Learn more at tideshift.com and on LinkedIn.
