Deal activity through the first half of 2025 has reflected the cautious but deliberate momentum that defined the second half of 2024. While acquirers have not moved with the exuberance seen during the last peak cycle, they have begun to lean back into strategic growth via acquisition with increased clarity around inflation stabilization, interest rate ceilings, and evolving sector-specific outlooks. Most activity has occurred among disciplined buyers with ready capital, clean balance sheets, and specific post-integration objectives. Strategic rationale has returned to the center of dealmaking.
Capital Positioning and Cost of Funds
Acquirers moved forward more decisively in H1 2025 as capital costs began to normalize. Although rates remain materially higher than the lows of 2021, borrowers and buyers have fully absorbed the new base-level assumptions. What shifted most this year wasn’t rate policy, but sentiment. Sponsors and strategics now assess deal opportunities through a recalibrated lens rather than holding back in anticipation of rate cuts. As a result, cash-heavy balance sheets, fixed-rate facilities, and dry powder in private equity continued to dictate which buyers remained competitive. Many mid-market deals that cleared in Q2 hinged on creative structuring that locked in short-term pricing advantages or leveraged seller notes and earnouts in sectors with moderate risk exposure.
Sector Dynamics and Strategic Concentration
Rather than chasing horizontal scale, dealmakers have focused heavily on vertical integration, IP acquisition, and operational synergies that address margin compression. Healthcare services, industrial automation, specialty logistics, and niche software platforms stood out as areas of concentrated interest. Notably, carve-out activity within multinational conglomerates picked up in the first half, particularly in legacy manufacturing and consumer product lines, as global firms shifted away from complex or low-margin verticals to focus on faster-growing or more modular businesses. Corporate sellers, particularly in the S&P 500, appeared more willing to shed non-core units than in the previous two years, especially when those sales could unlock internal capital to deploy into AI, compliance modernization, or decarbonization efforts.
Valuation, Due Diligence, and Deal Timelines
While valuation expectations began to align more closely in Q2, diligence timelines remained extended. Buyers continued scrutinizing supplier relationships, tech stack vulnerability, and talent risk at a granular level – particularly in services and lower middle-market tech targets. Despite stronger alignment on pricing, fewer buyers waived reps-and-warranties coverage or expedited closing periods, even when competition among bidders was stiff. The weight of operational risk has played a larger role in valuation modeling than in recent years. Firms that prepared well for diligence, with clean trailing financials and actionable forecasts, consistently closed above-market multiples, reinforcing the premium associated with deal readiness.
The year’s second half appears poised for a moderate uptick in M&A activity, particularly among corporate buyers seeking to rationalize product portfolios and improve operational leverage before the 2026 budgeting cycle begins. With equity markets remaining resilient and the cost of capital no longer in flux, internal growth alone will not satisfy most growth mandates through year-end.
Navigating this environment requires more than transactional readiness. Appraisal Economics offers a full suite of M&A-related valuation services for those seeking informed, defensible insights into asset value, risk alignment, and deal preparedness.