“We at DelMorgan & Co. expect an active capital market environment in 2025, leading to more transaction opportunities across all sectors”
Against the backdrop of positive sentiment among business owners and investors, an uptick in deal activity, a new presidential administration in the United States, and continued economic growth, 2025 appears to be poised for substantial deal flow. In a follow-up to the 2024 feature in LA Business Journal (What’s On the Minds of These Finance Professionals? – Los Angeles Business Journal), the senior partners of DelMorgan & Co. provide an overview of the state of the Mergers & Acquisitions (M&A) market and the macroeconomic environment.
Deal Activity is Healthy and Increasing
Global M&A saw noticeable growth in 2024, supported by strong macroeconomic conditions and healthy valuations. We are encouraged to see this trend continue in early 2025. Deal activity has been broadly distributed across sectors and geographies, which to us bodes positively for deal flow throughout the remainder of the year. Continued resilience and enthusiasm in the public equity markets serve as another tailwind, which may lead to increased private market multiples (which are already healthy). With regard to size, transactions involving middle market and lower-middle market companies continue to be active relative to larger deals. We expect these middle market and lower-middle market transactions to continue to dominate overall deal flow.
“Pro-Business” Presidential Administration
Following the U.S. election, the incoming administration’s pro-business stance resulted in an immediate jump in stock prices. While uncertainty over the administration’s economic policy remains, U.S. equity markets reached all-time highs in February 2025. This sentiment has carried over into the private markets, where both companies and investors are expressing significant enthusiasm about the deal climate in 2025. This elevated level of buyer / seller interest has the potential to increase deal activity and support valuations throughout the year.
Support for Tax Reduction
Taxes are one of the administration’s key policy areas, which may influence M&A deal flow. The administration has signaled that it favors or plans to pursue an overall reduction in both corporate and personal income taxes. Much of this centers around the extension of the 2017 Tax Cuts and Jobs Act (TCJA), which is otherwise set to expire at the end of 2025. With President Trump now in office and Republicans in control of Congress, most knowledgeable analysts expect that many of the provisions in TCJA will be extended. Other tax-related proposals from the administration include exempting certain types of income from taxation (such as overtime, tips and social security benefits), as well as further reduction in corporate taxes. Overall, reductions like these could lead to greater investment in the U.S. and increase business and consumer spending, all of which would support enhanced deal activity.
Tariffs: Threat or Reality?
Tariffs are another important policy area that could potentially impact M&A activity. So far, many of the tariffs announced by the Trump administration have not been implemented, specifically those targeting Canada and Mexico, which have been delayed via temporary agreements. It is possible that this phenomenon will come to represent a broader trend in which the threat of tariffs is used to extract economic (or other) concessions and instead of the tariffs themselves being ultimately implemented. If the tariffs as contemplated were implemented, they could lead to substantial economic choppiness, uncertainty and supply chain issues. This could in turn significantly complicate the deal environment for some transactions, while giving rise to strong incentives for other types of transactions, especially those focused on international investment into the U.S. and the onshoring of overseas operations.
The Current Interest Rate Environment
The U.S. Federal Reserve paused its interest rate cuts last month, stating it would want to see further progress on inflation and take a “careful approach” to future cuts. However, the minutes from the January meeting showed that officials have not fully written off rate cuts and still expect lower borrowing costs over time. Christopher J. Waller, a member of the Fed Board of Governors, suggested that the Fed “look through” any inflationary impact caused by tariffs, which he considers fleeting in nature. Additionally, the minutes acknowledge that inflation data tends to come in higher at the start of the year. All things considered, it seems that for the time being the current and projected interest rate environment is stable and predictable enough to support a robust 2025 deal flow.
About DelMorgan & Co. (delmorganco.com)
With over $300 billion of successful transactions in over 80 countries, DelMorgan‘s Investment Banking professionals have worked on some of the most challenging, most rewarding and highest profile transactions in the U.S. and around the globe. In the upcoming year we expect more high-quality deal execution for more clients and welcome the opportunity to speak with companies interested in potentially selling their businesses or raising capital.
