As we step into 2025, the M&A market is poised for a robust year. It is driven by a favorable economic backdrop and strong market sentiment. According to a recent Citizens Bank survey, the M&A market sentiment is at a five-year high, with over half of midsize company CEOs, CFOs, and private equity principals expressing confidence in a strong M&A market. This optimism is underpinned by several key factors:
- Optimism Among Business Leaders: A recent survey by J.P. Morgan indicates that nearly two-thirds of middle market executives are optimistic about the national economy heading into 2025. This confidence is translating into improved growth outlooks, with 74% of leaders expecting revenue increases and 65% projecting higher profits.
- Economic Growth: The U.S. economy is projected to grow at a steady pace, with real GDP growth estimated at 1.9% for 2025. Contributing to this growth is US productivity gains which have rebounded from just 1.5% from 2004 to 2022 and is expected to be 2.5% in 2025. 2025 is expected to experience strong consumer spending and business investments, all supported increased overall confidence.
- Increased Deal Volume: Following one of the worst M&A markets in 2023, global M&A deal activity is expected to continue to pick up momentum through 2025. With strong availability of capital and private equity hold periods approaching 6 years, the U.S. is likely to see a sharp increase in deal volume as they look to realize existing investments and deploy new capital.
- Valuation Growth: Valuations are expected to remain stable or increase, providing a solid foundation for deal-making in the M&A market. Increased availability of capital is a critical element of support. Private equity firms are sitting on over $1.2 trillion of capital waiting to be invested in U.S. businesses with an additional $1.5 trillion from private credit lenders to support M&A transactions. Along with a more favorable lending market from traditional commercial banks, valuations should improve in 2025.
While the M&A market outlook for the U.S. economy remains strong, we must remain vigilant at the continued uncertainty in the European and Chinese economies, both of which have significant impact on the trajectory of the U.S. And even domestically, much remains unknown about 2025 and the impact of the proposed economic policies of the new Administration.
Even with these cautionary observations, we believe the 2025 M&A market is set to thrive on the back of strong economic fundamentals, improved confidence and availability of capital. With a positive economic outlook and increased confidence among business leaders, the stage is set for a year of dynamic deal-making and strategic growth.
