Optimism in the mergers and acquisitions (M&A) sector has reached its highest level in five years, according to Citizens' 2025 Mergers & Acquisitions Outlook. The survey, now in its 14th year, gathered insights from 400 leaders of U.S. middle-market companies and private equity firms. It revealed that 54% of decision-makers view the current M&A environment as strong.
Economic growth and reduced inflation are key factors driving M&A plans for middle-market businesses in 2025. The survey indicates that 57% of respondents expect economic improvement in the U.S., an increase from last year's 47%. Furthermore, 59% of middle-market companies believe that this economic growth will facilitate business operations.
Valuation expectations have also improved, particularly among private equity firms and larger middle-market businesses. Nearly 90% of respondents anticipate stable or higher valuations over the next year.
"The prevailing headwinds of recent years have really moderated," stated Jason Wallace, head of Citizens M&A Advisory. "We see companies and sponsors coming into 2025 with big plans and this year’s survey shows how focused they are on the growth environment."
Private equity firms display notable optimism, with 68% considering the current M&A climate strong, up from last year's 52%. Additionally, 64% foresee increased deal flow in 2025 as more PE-backed assets enter the market.
While conditions differ across sectors, buyers and sellers generally find themselves on equal footing, fostering confidence in future transactions. The pool of potential sellers has grown significantly; now, 73% of middle-market companies identify as prospective sellers for the upcoming year, compared to last year's 63%.
PE firms appear ready to make purchases. Ninety percent who predict increased deal flow also plan to buy more than they did in 2024. This scenario may create a favorable setting for dealmaking as small and mid-size businesses grow more comfortable partnering with PE entities.
"Valuations have stabilized, and buyers and sellers find themselves on fairly equal footing," added Wallace. "The enthusiasm is palpable, and we are seeing a high level of M&A interest among both corporates and sponsors."
The survey highlighted other trends:
- There is growing openness to partial sales among potential sellers.
- Artificial intelligence is seen as a driver for deals; among PE firms expecting increased activity, 38% aim to add AI capabilities.
- Interest in international deals remains robust; notably, PE firms show heightened willingness to explore opportunities outside the U.S., with interest rising from last year's 54% to this year's 74%.
