2025 M&A Outlook

Introduction  

The mergers and acquisitions (M&A) market kicked off 2025 with cautious optimism. After years of volatility driven by pandemic recovery, political uncertainty, rising interest rates, and overall investment apprehension, the stage is now set for a transformative year in deal-making. The momentum for increased M&A activity in 2025 is further enhanced by the fact that the 2024 deal-making market never quite reached its potential, given the broader market concerns that permeated most of the latter half of the year. 

With much of the market tension lifted, converging several factors creates a compelling and positive deal-making environment. Potential interest rate cuts, abundant private equity dry powder, strong corporate balance sheets, and a general appetite for inorganic growth opportunities indicate a robust M&A deal market in 2025. 

As the year unfolds, key questions remain at the forefront of all deal-makers’ minds—how will the political climate impact the overall economy? Will interest rates decline, and what will their impact be on valuation? What industries will thrive in M&A this year? And many more. 

Regardless of whether you are a business owner, private equity buyer, strategic investor, or financial lender, 2025 is likely to provide abundant opportunities for growth and expansion through mergers and acquisitions.  

The Broader Business Market Backdrop: Positive Direction 

The broader economic environment sets a crucial foundation for M&A activity, particularly in the middle and lower-middle markets. Easing inflationary fears and a calming interest rate environment provide favorable conditions for business growth and M&A expansion. 

The U.S. economy is expected to grow modestly in 2025, and inflation will remain under 3%. Additionally, while the exact amount and number of interest rate changes in 2025 remain unknown, the consensus predicts additional rate cuts and an overall more stable interest rate environment than we’ve seen over the last several years. 

These factors create a growth environment for businesses in general, allowing potential sellers to record strong financial performance in 2025. Further, the financing environment for buyers is positively influenced by declining interest rates. Both factors set the stage for a strong M&A market. 

Private Equity and Corporate Buyers: Capital Must Be Deployed 

As is typically the case, private equity (PE) firms and corporate strategic buyers remain the dominant forces driving middle market M&A. When both forces are focused on growth through M&A, a dynamic market landscape is created—which is the case in 2025. 

The fact is that global PE firms have record levels of “dry powder”—or money that needs to be deployed on deals. An estimated $3.7 trillion of dry powder is poised to be invested at the beginning of 2025. These firms not only have the funds, but the pressure to deploy those funds on behalf of their investors is coming to an end as PE funds’ lifecycles near their completion. That is, PE groups have to either use their money to close deals or return that money to their original investors. This certainly sets the stage for aggressive PE investment. 

From a corporate viewpoint, strong organic growth and performance have led to many companies with very strong balance sheets—i.e., cash on the balance sheet that needs to be invested for growth. When this is the case, many companies look to M&A to fill capability gaps, enter new markets, and invest in new services and technologies. 

These two forces create an ideal M&A market for sellers. PE firms and corporate buyers will compete head-to-head for attractive assets, leading to strong valuations and more favorable deal structures for sellers. 

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Key Industries in 2025: Sectors Driving Deal Flow 

While all middle market industries are likely to see strong deal flow in 2025, there are several industries where M&A activity may be more robust due to sector-specific growth trends and strategic priorities. 

• Healthcare – aging populations and rising demand for specialized care continue to make healthcare a perennial hotbed for M&A 
• Technology – cloud computing, AI, AI-related (i.e., energy and data storage), and cybersecurity remain at the forefront of deal activity 
• Energy – while renewable energy stole the spotlight in this sector several years ago, the focus is now more on the energy efficiency sector as well as the energy requirements necessitated by the rapid expansion of AI and its large computing power requirements 
• Consumer Goods – e-commerce growth will drive M&A and online retailers, logistic companies, and direct-to-consumer brands continue to be attractive targets 
• Emerging Niches – niches that serve specific segments of technology, infrastructure, supply chains, and consumer markets will emerge as strong M&A candidates 

 M&A Momentum: The FOMO Factor 

As stated, 2025 has begun with overall optimism about the M&A environment. The strong business market, favorable interest rate conditions, dry powder, and corporate capital are available, and plentiful industry sector opportunities have all aligned to create an M&A environment that is ready to pop and one that buyers and sellers don’t want to miss.  

It is exactly this type of deal momentum that, once started, continues to accelerate. As such, buyers, sellers, and dealmakers have a bit of FOMO or “fear of missing out” starting to permeate the market. FOMO has always been a powerful driver of M&A activity, particularly in competitive markets.  

For buyers (both PE and corporate buyers), this FOMO is fueled by intense competition to find and invest in attractive assets, an abundance of capital to be deployed, and the perception that valuations may continue to increase further in 2025. 

Sellers are equally motivated by FOMO—specifically, the fear of missing out on peak valuations. Many sellers believe that 2025 represents a “sweet spot” for selling, with robust buyer demand, attractive options to select from when choosing a buyer, strong valuations, less complex deal structures, and favorable economic conditions. 

The point is that the anticipated M&A momentum is fueling a bit of M&A FOMO, which, in turn, fuels M&A activity. 

Conclusion 

As the M&A market gains momentum in 2025, the convergence of favorable economic conditions, capital availability, and sector-specific opportunities presents a promising landscape for dealmakers. The easing of inflationary pressures, the potential for interest rate cuts, and a more stable financing environment create an ecosystem where businesses can thrive, buyers can secure growth opportunities, and sellers can achieve strong valuations. 

The driving forces of private equity dry powder and corporate strategic investments set the stage for robust competition among buyers, particularly in the middle market. With industries like healthcare, technology, energy efficiency, and e-commerce poised for significant M&A activity, sellers in these sectors may find themselves in high demand. The emergence of niche opportunities further underscores the importance of differentiation and market readiness for buyers and sellers. 

For sellers, 2025 represents a rare window of opportunity to capitalize on favorable market conditions. Strong buyer demand, driven by record levels of dry powder and corporate cash reserves, creates an environment where sellers have more negotiating power, can command higher valuations, and may even secure more favorable deal structures. This, combined with FOMO among buyers and sellers alike, accelerates deal momentum across the market. 

However, success in this environment requires preparation and strategic execution. Sellers must ensure their financials are in order, their business growth narrative is compelling, and their operations are streamlined. Buyers, in turn, must act decisively while maintaining valuation discipline to avoid overpaying in competitive bidding scenarios. 

In conclusion, the M&A market 2025 is shaping up to be a robust activity and opportunity. Whether you’re a seller looking to exit at a peak valuation or a buyer seeking to invest in growth, the current landscape offers abundant possibilities. The key will be to act strategically, leverage market conditions effectively, and position yourself to take advantage of what is shaping up to be a pivotal year for mergers and acquisitions. For the lower middle market, 2025 could be a transformative year that unlocks growth, innovation, and long-term value for all participants in the deal-making ecosystem. 

Derek Avdul 

Managing Partner 

Benchmark International 

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