Expectations for Middle Market M&A in 2025

Recent surveys have shown that the M&A outlook for 2025 points to the highest levels of optimism in recent years for dealmaking activity. Citizens Bank’s 14th annual survey of over 400 middle market C-suite executives and private equity principals in the United States stated that a favorable economic environment is a key reason businesses and investors will seek M&A strategies in 2025. Furthermore, uncertainties from the last several years have subsided, and valuations are predicted to be stable or higher than in years past. Meanwhile, smaller mid-size companies are taking a more reserved approach, with many sellers opting to sell a piece of their business versus a full sale. In summary, surveyed decision-makers expect 2025 to see economic growth and a higher rate of M&A deals.

The survey included 400 middle market CEOs and CFOs from middle market companies ($25 million to $1 billion in revenue) and private equity (PE) principals across a mix of sectors in the United States. It was conducted during October and November of 2024.

M&A Optimism at a Five-Year High

The survey indicated that market sentiment is at a five-year high across mid-size businesses, with more than half of those surveyed saying that M&A activity will be strong amid economic growth with solid valuations as inflation concerns are waning.

Growth Outlook is Strong for Larger Firms

PE firms and larger companies in the middle market are aligned on their economic outlooks, with over 60% saying that the economy will improve. Around 50% said their economic expectations make them highly likely to engage in M&A this year. Smaller companies are taking a more careful outlook on the economy and their M&A objectives.

Almost 60% of middle market business leaders feel that economic growth in the U.S. will make operating easier in 2025, along with expected interest rate cuts and moderated inflation. These factors are also impacting M&A plans. Factors driving M&A optimism include:

1. U.S. economic growth (57%)
2. Easing inflation (55%)
3. The 2024 U.S. election (49%)
4. U.S. Federal Reserve policy (49%)
5. U.S. regulatory, trade/tariff policies (49%)

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Favorable Valuations

M&A decision-makers are more positive about valuation levels than in recent years. More firms expect valuations to stay stable or increase, while fewer expect valuations to fall. PE and larger midsize firms were the most optimistic this year, with more than half of PE respondents and 49% of larger-midsized company leaders seeing valuations rise.

Who Are the Most Optimistic?

Those in Financial Services and Technology, Media, and Telecom (TMT) reported being the most confident about valuations for their sectors. Roughly half expect valuations to increase. The industrial sector is also quite confident, while Transportation and Logistics were among the least optimistic, at just 32%.

More Sellers, Bigger Buyers

The potential seller pool grew 10% to include 73% of companies included in the survey. Seller interest is broad across various business sizes. Most potential sellers report that they are more willing to do a partial or ancillary business-unit sale than a full exit.

64% of PE firms said they expect deal flow to increase, particularly because they expect more PE-backed assets to come to market.

The strategic buyer pool rose 3% in 2024, with a steady share of potential buyers year-over-year. Yet, a gap remains between larger and smaller middle market firms, with more buying interest among larger firms.

Buyers and sellers appear to be balanced in the current market, which could boost confidence in dealmaking. Both PE and middle market businesses see the M&A market as fairly balanced overall.

The Role of Artificial Intelligence (AI)

The majority of PE firms expect deal flow to increase in 2025, thanks to the ongoing race to add AI capabilities to fund portfolios. As the technology continues to mature into new use cases, its role is expanding in financial processes within midsize businesses and sponsors.

International Deals

There is also more interest in finding international deal partners. While most middle market companies in the U.S. are looking to deal with their neighbors in Canada and Mexico, many are also open to dealmaking in Europe or the U.K.

Selling in 2025

If you are considering selling your company, 2025 is the time to act. There are a few things to keep in mind. If market dynamics shift, it could quickly become a seller’s market, and you will want to be prepared to capitalize on the opportunity. Being ready will be key to success. This includes being prepared to go through thorough marketing and due diligence processes to add value to the final deal terms. It’s also important to remember that the market dynamics are very different in different sectors, so you will want to partner with an M&A expert who has the right connections and expertise to get you the best deal.

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