2025: A Promising Year for Business Buyers

looking down a road into 2025

2025: A Promising Year for Business Buyers

Reflecting on 2024’s mergers and acquisitions (M&A) activity, the latest Market Pulse survey—featuring insights from 340 M&A advisors nationwide—provides a detailed look at the Lower Middle Market (businesses valued between $2M and $50M).

Key takeaways include:

  • Buyer Interest: Most deals attracted 2-3 offers, with larger transactions generating higher levels of interest.
  • Valuation Multiples: Median valuations dropped slightly due to rising interest rates and cautious lending. For businesses valued at $2M-$5M, the EBITDA multiple averaged 3.9X, while those in the $5M-$50M range averaged 4.5X.
  • Seller Motivations: Retirement continues to be the leading reason for exiting, especially for larger deals, while burnout drove many smaller business owners to sell.
  • Exit Planning: A significant number of business owners are neglecting exit planning.
  • Deal Structures: On average, buyers are putting 80% cash down, with the remainder often structured as seller financing, earnouts, or a combination of both.
  • Buyer Profiles (by deal size):
    • $2M-$5M businesses: 39% strategic buyers, 33% first-time buyers, 25% serial entrepreneurs.
    • $5M-$50M businesses: 37% strategic buyers, 32% private equity, 16% serial entrepreneurs.
    • First-time buyers in smaller deals are often motivated to “buy a job” (42%), while larger deals are driven by strategic growth, with 39% seeking vertical add-ons.
  • Top Industries:
    • $2M-$5M range: Construction/engineering (31%), followed by consumer goods/retail (17%).
    • $5M-$50M range: A tie between construction/engineering and manufacturing (21% each), with wholesale distribution coming next (16%).

Challenges in 2024

Many advisors describe 2024 as a “soft” year for M&A. The challenges stemmed from several factors:

  • Election Uncertainty: Election-year hesitation slowed decision-making.
  • Interest Rates: Higher rates tightened lending conditions.
  • Customer Behavior: Sellers’ customers were cautious, often holding excess inventory.

Declining seller financials also posed a significant hurdle. When a business’s current performance doesn’t match or exceed its historical profits, buyers tend to lose interest. This caused some potential sellers to delay entering the market, hoping for financial improvement.

Lessons from Past Trends

The start of the pandemic in 2020 severely disrupted M&A activity, with deals stalling and sellers unable to find buyers. By 2021, pent-up demand led to a surge in transactions. Experts predict a similar rebound in 2025.

With the election behind us, interest rates easing, and a business-friendly administration in place, the outlook for M&A activity is optimistic.

Opportunities for Buyers in 2025

For buyers, the forecast is promising:

  • Valuations are currently favorable.
  • As financial performance improves, more businesses will come to market, offering buyers greater opportunities.

Whether you’re seeking to own and operate a business or planning a strategic acquisition to expand your portfolio, 2025 might be your year. The positive signals suggest it’s an excellent time to take action.