M&A is constantly shifting, influenced by interest rates, economic conditions, and evolving deal structures. With private equity firms holding onto investments longer and buyers waiting for the right conditions, how will 2025 unfold for dealmakers?
To better understand the state of M&A, financing trends, and challenges in dealmaking, I sat down with Kirk Otis, Founder and Managing Director of Hawkeye Capital Partners. Kirk shared insights on why deals are facing headwinds, the role of interest rates, the impact of tariffs, and how strategic preparation can make or break an acquisition.
See full interview here
M&A in 2025: More Challenges, But Opportunities Remain
The M&A market in 2024 faced headwinds due to economic uncertainty and interest rate volatility. Entering 2025, Kirk observed that deal flow remains active but cautious, with buyers and sellers facing a longer, more complex transaction process.
“Last year was tough,” Kirk noted. “Deals slowed down as people waited for the election outcome and interest rates to stabilize. Buyers are hesitant because of high capital costs, and private equity firms are holding onto overpriced deals from 2021 and 2022, which is causing a longer-than-expected hold cycle.”
This bottleneck effect is creating challenges, particularly for first-time sellers who expected a quicker sale at a premium valuation.
However, despite delayed exits and hesitant buyers, capital is still being deployed, and firms that adapt their expectations and financing strategies will still find opportunities.
Interest Rates and Their Impact on M&A
One of the biggest concerns for dealmakers over the past two years has been interest rates and their impact on capital structure.
“Deals are still happening at about a 50-50 debt-to-equity split, but we haven’t seen the anticipated drop in interest rates,” Kirk said. “Because of that, deal volume hasn’t surged yet. Buyers are still cautious about taking on too much debt.”
Kirk emphasized that higher borrowing costs have made traditional leveraged buyouts (LBOs) less attractive. Instead, buyers are exploring alternative financing, seller financing, and structured earn-outs to bridge valuation gaps.
“Private equity firms are adjusting their capital structures rather than stopping deals outright. They’re using more equity and less debt in the short term, hoping to recapitalize or refinance at better rates later on,” he explained.
For sellers, this means:
- Expect longer deal timelines as buyers conduct more due diligence.
- Be prepared for alternative deal structures involving seller financing or earn-outs.
- Ensure your financials and forecasts are solid to demonstrate sustainability.
The Emerging Role of Tariffs in M&A Deals
Another factor influencing dealmaking is the threat of new tariffs, which has raised supply chain concerns and uncertainty for manufacturers and distributors.
“Right now, people are in a wait-and-see mode, hoping that tariffs won’t materialize or will be delayed,” Kirk said. “But for companies with significant international exposure, tariffs could impact cost structures, profitability, and ultimately, valuation.”
He noted that manufacturing businesses with overseas suppliers will need to proactively assess:
- Supply chain risks and the impact of tariffs on product costs.
- Ability to pass on increased costs to customers.
- Whether nearshoring or reshoring could be a viable long-term solution.
“Most buyers are now asking about supply chain vulnerabilities during due diligence,” Kirk explained. “If a company is too dependent on a single overseas supplier, it can be a dealbreaker.”
For business owners looking to sell, ensuring supply chain stability and cost predictability will be key to maintaining valuation in 2025.
Private Credit vs. Private Equity: How Deals Are Being Financed
With traditional bank lending tightening, private credit has stepped in as a dominant source of deal financing.
“The mix of deals has remained amazingly stable at 50% debt and 50% equity, but what’s changed is who is providing that debt,” Kirk said. “Private credit is filling the gap left by banks, offering flexible lending terms at a premium price.”
Key Differences in Financing Sources:
Traditional Banks
- More conservative underwriting
- Lower interest rates but stricter approval criteria
- Limited appetite for risk
Private Credit Funds
- More flexible terms
- Higher interest rates but easier approval
- Willing to take on riskier transactions
Alternative Financing (Earn-Outs, Seller Notes, Mezzanine Debt)
- Used to bridge valuation gaps
- Requires trust between buyers and sellers
- Helps facilitate deals when bank financing is unavailable
Kirk pointed out that private credit is no longer just for large transactions. Smaller and middle-market deals are increasingly turning to non-bank lenders for financing solutions.
The Importance of Preparation in Selling a Business
One of the most overlooked aspects of selling a business is preparation. Kirk stressed that a lack of preparation can derail deals, especially in the current market.
“Our philosophy is simple: be very transparent,” Kirk said. “When buyers start digging through financials and find surprises, deals fall apart. So, we prepare our clients well in advance.”
Best Practices for Sellers:
- Have all financials in order – Clean, organized, and verified financials speed up the due diligence process.
- Disclose potential challenges early – Hiding problems only causes issues later. Be upfront about weaknesses.
- Build a list of company challenges and solutions – If your business faces operational challenges, create a plan that shows how a new owner could solve them.
- Ensure leadership continuity – Buyers prefer companies that don’t rely too heavily on the current owner.
“A well-prepared business will always attract better buyers, higher valuations, and a smoother sale process,” Kirk emphasized
What to Expect for M&A in 2025
Despite challenges, Kirk remains optimistic about deal flow improving in 2025.
“There’s a lot of pent-up demand in the market,” he said. “Once interest rates stabilize and tariffs become clearer, we expect a strong second half of 2025 for deal activity.”
Key Predictions:
- A slow first half, followed by a stronger second half as market conditions stabilize.
- More seller financing and alternative structures to complete deals.
- Buyers focusing on supply chain resilience and cost structures.
- Texas continuing to lead as a top destination for investment and corporate growth.
“Private equity firms need to exit their aging investments, and that means more opportunities for strategic buyers and new investors. The key will be adaptability—for both buyers and sellers,” Kirk concluded.
Final Thoughts: How to Succeed in M&A in 2025
The M&A market remains active, but the rules of the game are changing. Success will come down to who is best prepared, adaptable, and strategic in their approach.
For sellers:
- Be realistic about valuations.
- Strengthen financial transparency.
- Address operational and supply chain risks early.
For buyers:
- Expect longer deal processes and more negotiation.
- Be open to alternative financing solutions.
- Look for businesses with strong management teams and pricing power.
To stay ahead in 2025 M&A trends, visit JamesSackey.Marketing for more insights, interviews, and deal strategies.
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