Despite economic headwinds from shifting trade policies, stock market volatility, and recession concerns, middle-market M&A is showing resilience. A perfect storm of available capital, generational transitions, and private equity urgency is driving deal activity this year.
A Mixed Start to 2025—But Optimism Persists
2025 began with high hopes following several years of suppressed M&A volumes. Yet, Q1 saw a year-over-year reduction in deal volume as new trade policies and recession fears introduced volatility. While we’re still understanding the full implications of recent tariff changes, businesses with elevated exposure to international supply chains are feeling the early impact.
Still, structural drivers remain strong—on both the supply and demand sides—and fuel a potential resurgence in deal activity.
Baby Boomers Are Driving the Supply Side
The Baby Boomer generation created unprecedented entrepreneurial wealth, and now these business owners are approaching retirement. Unlike previous generations, today’s business owners face a changing succession landscape:
- Younger generations are pursuing more diverse career paths
- Traditional succession planning has become less predictable
- Exit strategies are more complex and require greater planning
This demographic shift is creating a surge in businesses coming to market, with strategic buyers, private equity firms, and search funds all competing to provide attractive exit paths.
Private Equity Has Capital to Deploy—and Needs Liquidity Events
Private equity continues to represent a compelling option for business owners. As my colleague K.C. Brechnitz explores in his article “The Benefits of Private Equity for Middle-Market Companies” these firms bring:
- Access to Capital
- Strategic Relationships and Industry Networks
- Operational Resources
For owners, this means an opportunity to take chips off the table while still participating in the upside through rollover equity and management incentives.
At the same time, PE firms are under pressure. Years of limited exits have created fundraising headwinds and investor tension. Liquidity events are now mission-critical.
~$2 Trillion in Dry Powder Is Fueling a Seller-Friendly Market
There’s an unprecedented level of committed capital—roughly $2 trillion globally. This dry powder must be deployed, and financial buyers are feeling the urgency. The result? A highly competitive market that favors sellers, particularly those with high-quality, resilient businesses.
In addition to targeting new platform investments, financial buyers continue to be aggressive on strategic add-on acquisitions for their portfolio companies. With thousands of private equity-backed portfolio companies, there is an abundance of well-capitalized strategic acquirers seeking growth through M&A.
M&A Valuations Hold Strong for High-Quality Businesses
The last few years have seen an increase in buyer cost of capital and greater macroeconomic uncertainty, yet valuations for top-tier assets have held steady. The unprecedented level of dry powder and heightened market competition is forcing buyers to be proactive on:
- Attractive Valuations
- Seller-friendly Terms
- Speed and Certainty of Close
The companies that are better insulated from the recent tariff policies, especially ones with nondiscretionary service-based models, will experience increased investment interest and optionality. Valuations for these businesses will hold firm as investors seek opportunities with reduced international trade and macroeconomic exposure.
What It Means for Sellers and Stakeholders
The recent trade initiatives have ushered in elevated volatility for the country’s economic outlook, and it is too early to quantify the full impact given consistent adjustments to the policy. Uncertainty has an adverse impact on dealmaking, yet numerous market dynamics will facilitate M&A activity, especially in the middle-market. The combination of significant capital reserves with a high volume of incentivized sellers will continue to catalyze M&A transactions. The businesses that prove to be better insulated from macroeconomic factors will represent coveted investment opportunities and garner significant buyer attention.
Expert Guidance for Uncertain Times: The current environment presents challenges and opportunities for business owners and key stakeholders. For those who are contemplating a transaction, working with a trusted M&A advisor is critical to evaluate the implications of the current environment and achieve optimal outcomes.
Are you thinking about succession or a liquidity event? Contact us to learn how CriticalPoint can help your business.
Written By:
Managing Director, Investment Banking
About CriticalPoint
Headquartered in Los Angeles, CriticalPoint is a leading full-service financial M&A firm that uniquely combines the best of investment banking, private capital, and valuation service offerings. CriticalPoint executes, sources, and invests in deals across a wide variety of industries for the traditionally underserved middle market. Since our founding in 2012, our mission has been to serve the needs of owners, entrepreneurs, management teams, and stakeholders with our experience, knowledge, and expert judgment, to help them realize their companies’ greatest potential. From our deep-rooted foundation in private equity and investment banking, and our devotion to deal origination and business development, combined with being entrepreneurs at heart, we believe we are differentiated and well positioned to help companies wherever they are in their life cycle.
