The gap between good and average in mid-market PE is shrinking. Not because average is getting better. Because good is getting harder to achieve.
GF Data tracks valuations across the mid-market, and their latest numbers tell a story that should change how operating partners and management teams think about exit preparation.
The quality premium, the valuation gap between above-average and non-above-average deals, has compressed to roughly 3% in full-year 2025. That is a significant decline from recent years. And the reason it is compressing matters more than the number itself.
How GF Data defines “above average”
GF Data’s threshold for above-average is straightforward. A company qualifies if it delivers 10% or more in trailing twelve month revenue growth AND 10% or more in trailing twelve month EBITDA margins.
This is not an extraordinary bar. A decade ago, a significant portion of healthy mid-market companies cleared it. Revenue growth at 10% was achievable for well-run businesses in growing sectors. Margins at 10% were the baseline for companies worth buying.
What has changed is how many companies can sustain both simultaneously.
Top-line revenue growth has been declining since 2022. The pandemic surge faded. Macro headwinds appeared. Customer acquisition costs rose. Meanwhile, EBITDA margins have held relatively steady for many companies, buoyed by cost discipline and pricing adjustments. But holding margins while revenue growth slows is not the same as growing both.
The result is fewer companies qualifying as above average. The premium is compressing from the top, not the bottom. Average valuations have not risen to meet above-average. Above-average has simply become rarer, concentrating the premium into a smaller pool and reducing the measured gap.
What this means for sellers
If your company is one of the few that clears both thresholds, you still trade well. The premium still exists. Buyers still pay more for growth and margin together. The issue is that fewer companies qualify, which means the competition for that premium has intensified.
If your company is close but does not clear the bar, the premium disappears entirely. And “close” is where most mid-market companies live. Revenue growth at 7-8%. Margins at 11-12%. Numbers that feel good in a board meeting but do not hit the threshold that triggers above-average pricing.
The implication is uncomfortable. Marginal improvements in operating performance no longer move you from one valuation tier to another. The gap between “good” and “good enough for a premium” has narrowed enough that the differentiator is no longer the headline numbers. It is everything underneath them.
The new differentiator is provability
When every comparable company in a buyer’s pipeline has similar revenue growth and similar margins, the differentiator shifts to confidence.
Can the buyer verify your numbers quickly? Do the systems agree with each other? Can your finance team produce MRR by customer segment, reconciled to the general ledger, for 36 months, in 48 hours?
Or does the diligence process reveal that revenue recognition methodology differs by business unit, that customer counts do not match between CRM and billing, and that the EBITDA bridge has three steps that require manual explanation?
Both companies might show the same headline metrics. But the buyer’s investment committee has a completely different experience evaluating them. The first company generates confidence. The second generates questions. And questions, in a market where 80% of GPs expect flat multiples, translate directly into discounts.
GF Data’s separate analysis of 360 mid-market transactions since Q3 2024 quantifies this. Sellers who paired a quality-of-earnings analysis with a data quality assessment achieved 7.4x EBITDA multiples. Sellers without the data quality component achieved 7.0x. That is a 0.4x difference. On a $50 million business, it is $2 million.
The quality premium may be compressing in the traditional sense. But the data quality premium is holding.
Deal volume tells the same story
The compression is not happening in isolation. GF Data reported that deal volume dropped from roughly 100 completed transactions in Q4 2024 to roughly 70 in Q1 2025. Tariff uncertainty was the primary driver, prolonging and killing deals in progress. Manufacturing was hit hardest, with valuations well below 2021-2022 levels.
When volume drops, selectivity increases. Buyers have fewer opportunities but the same amount of capital to deploy. This means every deal that does get done is scrutinized more intensively. The bar for what constitutes a “good” deal has risen not because buyers want less, but because they can afford to be choosier.
In this environment, the quality premium compression is particularly dangerous for companies in the middle of the pack. In a high-volume market, an average company finds a buyer. In a low-volume, high-selectivity market, an average company sits.
The add-on angle
One factor GF Data highlights is the surge in add-on acquisitions. Add-ons increased substantially from early 2024 through end of 2025, with most falling in the $10 million to $25 million range. Sponsors are financing these off existing credit facilities from platforms acquired in 2021-2022.
This matters for quality premium compression because add-on acquisitions change the denominator. Each bolt-on brings its own ERP, its own reporting standards, its own data definitions. The platform company that qualified as above average before three add-ons might not qualify after them, if the combined entity cannot report consolidated metrics cleanly.
The revenue growth number in the board deck might look strong. But a buyer doing diligence on the combined entity wants to see organic growth separated from acquired growth, customer retention across all business units, and margin contributions by segment. If those numbers require three weeks of manual reconciliation to produce, the buyer adjusts their assessment regardless of the headline figure.
What operating partners should do differently
The response to quality premium compression is not to push harder on top-line growth or margin expansion. Those levers matter, but they are necessary conditions, not sufficient ones. The response is to make the numbers beneath the headlines defensible, verifiable, and fast.
Establish canonical sources of truth early. For every metric the board tracks, there should be one system that produces the authoritative number. Revenue comes from here. Customer count comes from here. EBITDA adjustments are documented here. If three systems give three different answers, the answer is not to pick one and present it. The answer is to fix the underlying disagreement.
Invest in reconciliation, not dashboards. Most portfolio companies have more reporting infrastructure than they need and less data reconciliation than they need. The dashboard looks great. But the data feeding it has not been validated against finance, has not been checked for consistency across business units, and has not been tested against the questions a buyer will ask. The work that matters is unglamorous. It is making the numbers agree with each other.
Separate organic from acquired performance. If you have done add-ons, make sure you can show the organic growth of the original platform separately from the acquired growth. Buyers will ask. And if the answer requires a month of analysis, you have already lost the narrative.
Run a diligence rehearsal. Before the exit process starts, have an independent party ask the questions a buyer would ask. Not the polite questions. The hard ones. Can you show customer retention by cohort? Can you reconcile CRM to billing? Can you explain every adjustment in the EBITDA bridge with supporting data? The rehearsal will surface the gaps while there is still time to close them.
The companies that trade at premium multiples in 2026
In a market where the quality premium is compressing and deal volume is down, the companies that trade at premium multiples will not be the ones with the best headline numbers. They will be the ones that make the buyer’s diligence team say, “This is clean. We can move fast.”
That is a data readiness statement, not an operating performance statement.
The bar for above-average valuations is rising while fewer companies can clear it. The differentiator for the companies that do clear it is not more growth or better margins. It is the ability to prove both with data that a skeptical buyer can verify independently.
The quality premium is compressing. The data quality premium is not. In a market where 12 is the new 5, the companies that can prove their performance with clean, governed, defensible data are the ones that will still trade at the top of the range.