It’s never too early to begin preparing for a potential transaction. Due to restrictive monetary policies of the Fed beginning in early 2022, the increase in the cost of capital has resulted in a historic backlog of mergers and acquisitions (M&A).  

Now, with the start of interest rate cuts in September 2024 and a surprisingly resilient economy, M&A volume has already begun to trend upward.  With the upcoming US presidential election, some additional short-term uncertainty remains. However, the stage is set for a robust market for deal-making in 2025.  Those who have prepared will be the first to the trough and reap the rewards.

The heat is on to realize investments. Roughly 4,500 PE-backed mid-market companies are awaiting exits, with 36.2% held for five years or longer. As PE firms bring more lower-quality assets to market, valuations may trend downward. Nevertheless, some dealmakers expect upcoming interest-rate cuts to help alleviate the exit bottleneck. Lower rates will enable companies to reduce their interest expenses and invest those savings in growth, while buyers should be able to secure better terms.

https://pitchbook.com/news/articles/middle-market-recovery-trends-charts