Optimism prevails among dealmakers anticipating strong M&A market despite ongoing challenges
The current atmosphere among dealmakers is one of optimism, with a bullish outlook on the M&A market despite ongoing macroeconomic challenges. According to Robert Brown, President of DataStrike, there has been an uptick in dealmaking pace, accompanied by debt markets accepting higher interest rates more readily. Private Equity (PE) firms are adapting to this new normal by underwriting deals that are more sensible and flexible.
James Myers Jr., Vice President of Business Development at BEAM Collaborative, notes that economic stability, increasing valuations, and robust buyer demand are key drivers of the 2025 M&A landscape. He highlights that PE firms are actively pursuing deals, with retiring business owners creating a steady flow of businesses entering the market, leading to a dynamic and opportunistic environment.
George R. Thomas, a member of Metz Lewis Brodman Must O’Keefe, emphasizes that despite existing macroeconomic challenges, M&A activity persists but with a more discerning approach. Strategic buyers and PE firms are focusing on high-value transformative deals over broader acquisitions due to the rising cost of leverage with increased interest rates impacting deal structures. This environment favors cash-rich strategic buyers and PE firms with substantial dry powder reserves.
Kristine Carpenter, Vice President Legal and Assistant Corporate Secretary at Constellium, echoes the sentiment of cautious optimism for 2025, pointing out that a busy fourth quarter in 2024 indicates a growing appetite for M&A, promising a bustling year ahead. Buyers are under pressure to effectively deploy capital to meet growth expectations from shareholders and stakeholders, while sellers are looking for meaningful exits or opportunities to optimize their portfolios.
Dealmakers share a positive outlook on the upcoming year in M&A, although they acknowledge certain challenges that necessitate a measured approach. Macro-economic factors such as the geopolitical landscape, trade tariffs and deficits, inflation, and tax policy are among the considerations highlighted by industry experts like Ven Raju, President and CEO of Innovation Works, and Rama Subba Rao Mithipati, CFO of Aquatech International.
Interest rates, inflation, and potential global economic slowdowns are critical points of concern for dealmakers in the coming year, according to Thomas. With the current interest rate regime shift, the impact of the new administration’s policies on markets could be a significant factor in 2025, as mentioned by Nick Conti, Vice President at 3 Rivers Capital. Policy uncertainty and economic caution also weigh on decisions, with potential effects on supply chain resilience, labor shortages, and workforce demographics, as noted by Toby Kreidler, Director at Stellex Capital Management.
Despite these challenges, stable GDP growth, consistent interest rates, and a favorable credit market present a strong foundation for M&A activity, Myers explains. Confidence among buyers and sellers is bolstered by these factors, potentially further boosted by deregulation and tax incentives, resulting in a promising year ahead for M&A across various sectors.
The strength of businesses with robust financials, growth potential, and specialized expertise can lead to premium valuations, reflecting the notion that quality remains a driving force in the M&A landscape. In conclusion, while dealmakers anticipate a vibrant and fruitful 2025 for M&A, they remain vigilant and strategic in their approach amidst the prevailing economic uncertainties.