Andrew Rice, CPA, CVA

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Mid-Year Review on the 2025 M&A Outlook:

Private equity firms continue to be under mounting pressure to deploy capital that has been sitting on the sidelines for too long. While investors are growing impatient, the real question is whether there are enough quality assets in the market to generate the returns required.

The buyer-seller stalemate of the last two years is the result of conflicting market dynamics that have prohibited many transactions from getting completed. None have been more impactful than the prolonged valuation-hangover experienced by sellers who missed out on exiting in 2021-2022 and have had to reluctantly let go of the valuation multiples that passed them by. On the other side of the table, private equity has had to reassess its traditional LBO-math (leveraged buyout), as the cost of capital has increased in line with rising interest rates. This kind of friction has set the stage for 2025.

Many have pointed to 2025 with optimism. Surely, enough time had passed from the deal frenzy a few years ago to pave the way for a healthier transaction landscape.

One word from Washington, D.C. quickly poured sand in the gears of M&A activity: tariffs

Renewed tariffs with many trade partners, most notably on Chinese goods, are creating uncertainty for global supply chains. These measures threaten to increase costs, disrupt forecasts, and dampen cross-border M&A, especially in manufacturing, industrials, and consumer products. Strategic and private equity buyers may become more cautious, and lenders more selective, when evaluating deals with trade exposure.

As a result, 2025’s M&A activity may split along sector lines:

• Resilient Sectors: Business services, healthcare, and software—largely insulated from
  tariffs—are expected to see healthy deal flow.
• Trade-Exposed Industries: Manufacturing and consumer sectors may experience slower deal processes and downward pressure on valuations.

Private equity is likely to adapt by focusing on U.S.-based companies with limited international dependencies, aligning deal theses with a more protectionist trade environment.

In this tug of war, well-positioned sellers—those with domestic operations, strong margins, and minimal tariff exposure—stand to benefit from a highly competitive buyer pool. But for companies tied to global inputs or exports, uncertainty may weigh on buyer interest and pricing.

Ultimately, 2025 won’t be a uniformly bullish M&A year—but it won’t be stagnant either. Capital is abundant and ready to move. Success will depend on where and how it’s deployed.

About Trout Capital Advisors, LLC:
Trout Capital Advisors, LLC is a boutique investment banking firm that specializes in sell-side representation for family and founder owned businesses in the lower-middle market ($1-$10mm EBITDA). Learn more at www.troutcapital.com.