M&A Activity Accelerating into 2025

As we approach the year-end, Taureau Group reflects on an exciting year for the firm and its clients and is preparing for an improved M&A market in 2025. Following a prolonged stretch of what we would characterize broadly as more cautious deal-making during 2022-2023, Taureau Group has seen increased M&A activity throughout 2024 (as the elections have finished, lending markets have improved, and supply chain and economic trends have shown more stabilization) and expects this positive momentum to accelerate in 2025. Many had expected 2024 to be a rebound year for deal activity, and it should be once the year is finalized, but still a little tempered from original expectations. Several tailwinds will and should continue to favor a strong and heightened M&A market and macroeconomic environment in 2025, but there are still several headwinds to be conscious of.

2024 Recap
Before providing some insights into our views for 2025, we’ll take a moment to reflect on notable data points and themes we’ve seen in 2024. While full-year 2024 deal data is not yet available, year-to-date data through September reflects a nice improvement over 2022-2023 resulting from restored economic and financial stability, an easing of interest rates, improved lending environment and increased optimism.

In reviewing completed deal data, there continues to be a greater appetite from buyers for add-on investments (vs. platform opportunities) and smaller-to-mid-sized deals (vs. large and transformational opportunities). A theme from recent years that remains prevalent and will carry forward into 2025 is that the market is still hungry (and aggressive) for “high-quality” platform opportunities, which have not been abundant as of late as deal quality has been lacking in general.

Understandably, a rapid rise in interest rates paired with varying degrees of economic uncertainty over the recent years have been two key drivers putting downward pressure on valuations. Coming off the “frothy” highs of 2021-2022, there have certainly been greater disconnects between sellers and buyers on valuation, which has also driven an increase in earnouts, seller financing, and/or earnouts to bridge valuation gaps. With that said, broader valuations have remained slightly ahead of the long-term average, especially for “high quality” opportunities that are in great demand; per GF Data, average EBITDA multiple valuations for year-to-date 2024 of 7.1x were 0.2x ahead of the historical average of 6.9x. The largest variations in valuations to date have been amongst the top deal size tiers given dynamics with interest rates and lending dynamics, but also in our subjective view that investors as of late have had less risk appetite for larger transactions with any elements of risk (i.e., if “betting” on a deal, betting smaller to realize less absolute risk).

2025 Puts and Takes
First, as time continues to go by, the impacts of the COVID-19 pandemic are becoming less and less, which results in more stability and certainty, a key factor when contemplating M&A. More certainty of future results (i.e., less risk and “unknowns”) allows for a greater alignment of value expectations and less reliance on deal structure to bridge valuation gaps. Before diving into broader themes, this dynamic alone will be a foundational and favorable element to higher deal activity going forward.

Secondly, while an ample supply of deals will continue, there should be an acceleration in the coming years from both family-owned and private equity-backed businesses. Demographics of aging business owners and “the great wealth transfer” compounded by the increased age (or hold period) of private equity investments requiring an exit are two contributing factors. Supporting the decision of a contemplated sale is the expectation that the macro economy will strengthen in 2025, driving improved financial results and higher deal values.

As corporations look to grow and evolve, and investors seek alternative investments, M&A will remain a key component to both of these objectives. While it is well known that there is an abundance of buyer capital in the market between cash on corporate balance sheets ($4.1+ trillion in the U.S. alone per Bloomberg) and private equity dry powder ($2.6+ trillion globally per Preqin), there are additional drivers that create a more favorable deal environment. Specifically, a further easing of interest rates, increasing consumer confidence, a resilient and growing U.S. economy, and potentially a better alignment of valuation expectations should outweigh the potential headwinds and unknowns at this time. In terms of headwinds, gains in the broader U.S. economy and M&A deal activity could be tempered by the inability to meet demand (e.g., tight labor markets and supply chain inefficiencies) and control costs paired with newer developments associated with emerging policy risks such as the implementation of trade tariffs and stricter immigration policies.

Both strategic and financial investors are expected to be very active in 2025, and below is a small sampling of where we expect ongoing and heightened levels of deal interest:

• Aerospace and defense (supply chain consolidation)
• Business and financial services (accounting, consulting, IT)
• Home services (all angles, not just HVAC and plumbing)
• Industrial manufacturing (reshoring and supply chain consolidation)
• MedTech, devices, and healthcare (innovative technologies)
• Packaging (especially corrugated and other sustainable solutions)
• Technology (AI, cybersecurity, software)

Client Focused. Results Driven.
Taureau Group works with companies (privately held and private equity owned) in various capacities – looking to sell, recapitalize, make acquisitions, and seek capital. When considering the unique needs facing your business and industry, it is important now more than ever to find the best partner who understands your objectives in this ever-changing deal market. Taureau Group will provide creative, unconflicted solutions, and bespoke strategies with unequivocal attention to your goals and success.

Below is a sampling of recent transactions proudly completed by Taureau Group: