Employees emerge as top acquisition buyers in small-to-mid market

Over the last 20 years of my legal career, the trajectory of a business exit has always been relatively predictable. I’ve watched countless founders spend years (often a lifetime) carefully grooming their businesses for an external sale, seeking the perfect plug-in buyer to secure their legacy and move on to the next chapter.

However, as we navigate the unique economic landscape of 2026, there has been a notable change in this predictability. It is no longer the open market driving the majority of acquisitions in our pipeline. Instead, a vast portion of the deals my firm is finalising are buy-outs led by the businesses own employees.

For accounting practitioners, this is not just a change in who sits at the closing table. It represents a fundamental shift in how we must advise clients on succession, risk and the very metrics that determine a successful exit.

The Credit-Driven Pivot

While external acquisitions remain common, one of the key contributing factors to this shift is how banks are lending money right now. In the current market, lenders are placing a high premium on proven insider knowledge and success. From their perspective, an employee who already knows the business inside out can represent a much lower risk than an external buyer who has to learn the ropes.

This is largely because a management buy-out offers something an external trade sale cannot: true operational continuity. When a long-term employee seeks finance to buy out a founder, the bank often looks beyond the profit and loss. They see a buyer who has already mastered the systems, maintained the client base, and fits the company culture, meaning the business does not have to slow down during the transition and is less likely to experience client and employee attrition post completion.

For the accountant, this means that operational stability is fast becoming a primary metric for finance approval.

Collaborative insights for the M&A process

As a commercial lawyer working alongside accountants and brokers to close these deals, it’s been evident that the most successful internal transactions in 2026 share a few common characteristics. For practitioners managing the financial side of an exit, there are three specific areas where this trend is changing the conversation:

1. Re-framing the financing narrative

In the deals that successfully reach completion, the lending pitch is no longer just about the numbers on the page. We are seeing a shift where the internal nature of the deal is presented as a primary risk-management strategy. Highlighting that the incoming owner has already overseen the profit and loss or managed key accounts for years is often what provides the credit department with the confidence to approve the loan.

2. Evaluating the certainty of the sale

Internal sales often involve different structures, such as staged earn-outs or adjusted pricing to reflect the lack of a broker fee. In my experience, a slightly lower internal offer can often be more attractive to a founder than a higher external bid that carries a higher risk of falling over during the finance clause. From a legal and strategic perspective, the certainty of an internal buyer is becoming a significant part of the value proposition.

3. Navigating structured transitions

We’re seeing a rise in hybrid models where the founder stays on in a consultative role while the employee takes over the equity. These staged buy-outs require a high level of coordination between the legal and accounting teams to ensure the business trajectory remains stable post completion - particularly in instances where the new owner is relying on business earnings to fund the debt they have taken on to acquire it. Often, this requires a staged earn-out structure to protect the company's cash flow during the transition. When the legal structure of the transaction and the tax strategy are aligned early, these transitions tend to be far smoother for everyone involved.

A shifting marketplace

This trend towards internal acquisitions reflects a broader move in the Australian SME sector toward stability and continuity. While external sales will always have their place, the current environment is proving that the most viable buyer for a business is often already on the payroll.

By focusing on these internal succession opportunities, we can work together to provide the stability that business owners are looking for in a complex market.

Tammi McDermott is the founder and principal of Lawnch - your legal, R&D and grant partner: propelling bold ideas into commercial success.