As we begin 2026, the lending landscape remains challenging for many small and midsized businesses in the delivered fuels and HVAC sectors. Interest rates have declined modestly but remain elevated by historical standards. This has kept capital costs high and deal activity muted which has hindered growth opportunities. Traditional lenders continue to move cautiously, stretching diligence timelines even for strong, well-prepared acquisitions. Overall deal volume continues to gain steam for best-in-class companies, but activity across the broader market remains uneven. However, there are signs of improvement for small and midsized businesses in the year to come. And the announced December Federal Reserve easing of interest rates may be the spark to accelerate deal activity in the lower middle market.
Here’s a quick spin around the market and my observations for you to consider as we enter the new year:
Private credit (non-bank) lenders have remained an enduring and influential force throughout this cycle, filling the acquisition financing gaps left by traditional banks. A growing segment of fuel and HVAC companies is taking advantage of the flexible structures that private capital providers offer. As business owners, exploring these non-bank options has become increasingly essential as they offer more flexible capital structures and amortization schedules.
If you’re considering stepping back from your business, today’s market offers meaningful opportunities. Capital is available, and buyers remain interested, especially if your company has demonstrated consistent performance and strong recurring revenue. Conversely, owners who have experienced uneven results in recent
years may face lower buyer interest and more complex deal structures.
A blended capital structure using traditional bank financing and private capital can still support an attractive transaction value. The key is understanding where your business stands in the current environment and structuring a sale that aligns with both your goals and buyers’ expectations. While select high-growth suburban regions have seen competitive bidding for heating oil assets in recent months, sellers in many parts of the country can expect a seller note component to help support their desired transaction price. Smaller fuel distributors with limited or no service offerings and weaker customer stickiness are finding their buyer universe narrow.
Owners contemplating a sale in the next few years can attract a greater pool of buyers by expanding
their predictable revenue streams and ensuring margins on fuel and service sales are consistent, sustainable and among the best in class. Service contracts, delivery fees (where permitted), monitoring fees and a majority percentage of automatic deliveries will catch the attention of buyers. Purchase prices remain fair but disciplined for heating oil and HVAC assets due to the pressure of the lingering high cost of capital on free cash flow. Companies generating more than $2 million of EBITDA are once again attracting a wider pool of potential buyers, as strategics, cross-town rivals and, in the case of sellers with a wider product offering, financial buyers such as private equity and other private capital buyers have expanded their search for platforms and tuck-in acquisitions. These larger sellers can expect the strongest multiples in the current market. By contrast, companies with EBITDA under $1 million that are unwilling to consider seller notes or earnouts may find 2026 a difficult year to transact.
While conditions are not optimal in the capital markets as of the time of this writing, you can take comfort in the fact that the trajectory is favorable and that deals continue to close in spite of less-than-ideal conditions. Sellers must recognize that tight credit conditions and rigorous underwriting are continuing features of the market for most players. As you explore options, it’s best to hold conversations with both traditional lenders and private capital providers and plan to explore multiple deal structures. And, above all, remember that the single greatest motivator to capital providers and buyers is a demonstrated trend of repeatable earnings. l FON
Forward-thinking business owners continue to explore refinancing and recapitalization options to fund growth and manage balance sheet leverage. The market for restructuring remains healthy, particularly for larger and well-managed companies with strong fundamentals. However, many owners in the lower middle market continue to encounter some headwinds, both in achieving desirable valuations and in securing capital at favorable terms. Looking ahead, it’s crucial to manage free cash flow carefully. Tariffs on steel, tanks and vehicles continue to pressure margins, and both traditional and private lenders are watching closely to see how businesses adapt. Now is the time to revisit margin targets in both fuels and equipment service activity to ensure adequate cash reserves are being built.
As a key part of its winter operations, ISO New England closely monitors weather forecasts and energy supplies, expected consumer demand, and other variables to identify and communicate potential reliability issues. Each week from December through February, the ISO publishes the results of these analyses in the 21-Day Energy Assessment Forecast and Report—a rolling, three-week outlook of anticipated power system conditions.
According to ISO New England, “The purpose of this sophisticated assessment is to identify potential energy shortfalls while there is time to prevent them or lessen their impact. With up to three weeks’ notice, the report gives resource owners time to evaluate the status of their fuel supplies and to arrange for replenishment, as needed, or to reschedule maintenance in order to maximize availability.
“Such an early warning would also allow time for coordination among the ISO, the region’s utilities, and government officials, especially if conservation is needed.”
The assessment examines whether the region’s electricity supply could fall below anticipated consumer demand and required operating reserves during any hour in the upcoming three-week period. The report summarizes the bulk electric system’s overall health and risk level, and lists any Energy Alerts or Energy Emergencies:
• An Energy Alert warns of an anticipated energy shortfall in days six to 21 of the forecast period
• An Energy Emergency warns of an anticipated energy shortfall in days one to five of the forecast period
The report includes information about when each alert or emergency was declared, and a projection of when it will end.
To see the latest report, visit: https://www.iso-ne.com/isoexpress/web/reports/ operations/-/tree/21-Day-Energy-Assessment-Forecast-and-Report-Results l FON