Jeffrey Simpson

BIO:

Jeffrey Simpson is managing member of Notch Capital( www. notchcap. com), a private investment firm that partners with founder- and family-owned fuel distribution, HVAC and home services companies. Notch Capital invests private capital for majority business purchases and equity recapitalizations. Simpson can be reached at jsimpson @ notchcap. com and( 860) 299-3358.

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:

Flexibility Is Attractive – and Often Necessary

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.

Recapitalization and Growth Considerations

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.

The Outlook for Potential Sellers

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.

What Buyers are Looking For

Owners contemplating a sale in the next few years can attract a greater pool of buyers by expanding

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