With the start of a new year underway, many small and medium-sized (SMB) business owners are contemplating whether 2025 is the right year for a business exit. This article will explore some of the key themes that will shape the M&A environment for this year. Additionally, we will share outlooks from several firms and provide our own perspective on what lies ahead.
Currently, the economic and political landscape reflects a mix of cautious optimism and uncertainty. Following 100 basis points of rate cuts in 2024, the Federal Reserve appears set to adopt a “wait and see” approach, supported by strong November and December jobs reports but mixed progress on inflation. While a robust labor market reduces the need for immediate monetary easing, the absence of additional rate cuts could sustain higher borrowing costs, potentially creating headwinds for M&A activity.
Meanwhile, domestic and foreign policies under the Trump Administration may significantly shape the economic outlook. Proposed tax cuts could stimulate consumer spending and corporate investment, but they could likewise risk exacerbating fiscal deficits; meanwhile, large-scale deportations may strain labor supply and disrupt industries heavily reliant on immigrant workers. On the international stage, potential tariffs and aggressive foreign policy stances could increase global uncertainty, driving up costs for businesses and consumers while dampening export growth. Against this backdrop, the balance between monetary policy, fiscal measures, and geopolitical developments will play a pivotal role in defining 2025’s economic trajectory.
However, despite potential macroeconomic challenges, M&A activity is expected to maintain momentum in 2025. Ernst & Young projects a 10% increase in overall deal activity compared to 2024, with Private Equity transactions anticipated to climb by 16%. Similarly, KPMG forecasts a broad-based uptick across markets and sectors, driven in part by the deployment of some of the estimated $3 billion in dry powder that is waiting to be invested by Private Equity firms. This surplus of capital underscores robust investor appetite and capacity for deals. Citizens Financial Group highlights a ‘rising optimism’ for middle-market M&A activity in 2025. According to the Citizens M&A Outlook Report, dealmakers have expressed the highest level of optimism in five years. This bullish sentiment is driven by the stabilization of valuations, easing inflation pressures, and expectations of economic growth.
With inauguration day behind us, the Trump Administration is set to implement sweeping changes both domestically and internationally. The key question for 2025 will be how these changes impact deal-making and whether the Federal Reserve and Washington can effectively collaborate to navigate this evolving landscape. If the Federal Reserve manages inflation successfully and domestic and foreign policy shifts do not significantly disrupt economic conditions, the outlook for sustained growth in deal-making remains optimistic, positioning 2025 as a potentially strong year for M&A activity.
From our viewpoint, it’s clear that uncertainty remains a factor for 2025. However, we firmly believe the positive catalysts on the horizon will outweigh potential headwinds in the deal-making environment. It is our opinion that 2025 will bring a year of measured growth for M&A. If you’re at a crossroads, questioning whether now is the right time for you and your business to investigate an exit, the Bluestem team is here to help. Let us partner with you to assess, plan, and execute a strategy tailored to you and your goals.
