#USA #AI #Cleveland #Middle Market #KeyBank

Middle Market Business Confidence on the Rise

As we step into 2026, a remarkable surge in optimism among middle market businesses has been observed, with a staggering 77% of executives expressing confidence in their companies' performance for the upcoming year. This optimism approaches historic highs, despite the broader U.S. economic landscape presenting a mixed bag of challenges and opportunities, according to the KeyBank's Q4 2025 Middle Market Sentiment Survey.

This survey involved feedback from 750 financial decision-makers representing companies with revenues ranging from $10 million to $1 billion. It reveals a disconnect between the general economic sentiment and the strong confidence felt at the company level—a divergence that suggests a proactive approach amidst uncertainty.

A Drive for Operational Excellence

The increase in optimism is largely attributed to significant improvements in operational efficiency and technological advancements. Notably, the survey indicates that:

• - 66% of respondents credited improved business operations for their positive outlook, a notable increase from 51% reported in Q2 2025.
• - 57% pointed to advancements in technology as a critical driver of their confidence.
• - 51% are actively implementing artificial intelligence (AI) and automation, highlighting a new key factor that shapes growth expectations.

Ken Gavrity, President of Key Commercial Bank, noted that middle market companies are not merely waiting for favorable economic conditions; instead, they are capitalizing on the current economic disruption to carve out competitive advantages.

Catalysts for Growth: M&A and Capital Deployment

In a further sign of growth orientation, two-thirds of surveyed businesses anticipate engaging in mergers and acquisitions (M&A) within the next three years. Almost half of the companies are actively seeking increased access to capital to fuel their growth, while 67% plan to enhance cash flow management. Furthermore, 58% are concentrating on cost reduction initiatives, indicating strategic adjustments to bolster profitability.

Gavrity emphasized the M&A market's potential, commenting on the narrowing valuation gap between buyers and sellers. Companies with strong financial health are increasingly taking part in strategic acquisition dialogues, suggesting an active market ahead.

Awareness of Strategic Challenges

Despite the prevailing optimism, businesses continue to monitor various challenges closely. The top concerns include:

• - 36% cite tariffs and trade agreements as a primary issue.
• - 32% point to inflation, which has stabilized but still looms large.
• - 26% list labor costs, and 25% mention interest rates as ongoing worries.

Interestingly, attention to supply chain disruptions has significantly diminished, with only 19% of businesses highlighting it as a concern, as many have implemented measures to overcome these hurdles.

AI Integration and Cybersecurity Threats

With technology adoption accelerating, 75% of polled companies plan to utilize AI to automate employee tasks, a 19 percentage point increase from previous surveys. Additionally, 71% are focused on using AI for data analytics, with 68% expecting enhanced productivity as a significant benefit of these initiatives.

Nevertheless, many companies lag in achieving their ideal state for AI implementation. Leaders face notable challenges, including:

• - Ensuring effective collaboration between AI and human employees (51%).
• - Addressing job security concerns (48%).
• - Reskilling workforce members (45%).

Furthermore, with 66% of organizations reporting cyber threats in the past year, investment in cybersecurity is on the rise, with 52% planning moderate increases in their budgets and 17% anticipating substantial spending growth.

Looking Ahead: Strategic Focus for 2026

Given the insights from the survey, Gavrity identified several strategic imperatives for middle market leaders:

• - Accelerate AI Implementation: Companies should move swiftly to adopt AI technologies, gaining a competitive edge over slower competitors.
• - Deploy Capital Aggressively: As 2026 presents an opportune environment for M&A, those with solid strategies and access to capital will reap the most rewards.
• - Prioritize Cybersecurity: With cybersecurity risks posing significant threats to business performance, investing in robust cyber capabilities is critical.

In summary, middle market businesses exhibit remarkable resilience and strategic foresight, positioning themselves for success despite economic headwinds. As Gavrity concluded, Key Commercial Bank remains dedicated to providing these dynamic enterprises with essential resources to seize forthcoming opportunities in the evolving landscape.