The middle-market mergers and acquisitions landscape is in a state of transition as we step into 2025. With shifting interest rates, private credit expansion, and looming tariff concerns, dealmakers and business owners must adapt to a new market reality.
To get a closer look at what’s happening in M&A right now, I sat down with Barrett Kingsriter, Senior Managing Director of Pinecrest Capital Partners, an investment banking firm specializing in middle-market transactions for companies with $25M – $500M in revenue.
Barrett shared key insights on deal flow, valuation trends, financing structures, and what makes Texas one of the most attractive markets for M&A today.
See the full interview here.
The Current State of M&A: Recovery and Momentum
Barrett describes today’s M&A market as optimistic, with positive momentum building after two slower years in 2022 and 2023.
- 2021 saw a massive spike in deal volume, largely due to post-pandemic pent-up demand.
- 2022 and 2023 experienced a downturn, as uncertainty around interest rates and economic conditions stalled transactions.
- 2024 was a recovery year, with lower interest rates and capital overhang fueling increased activity.
As we head into 2025, there is buying pressure from private equity, but Q1 deal volume has been slower than expected. The key reasons?
Sellers are waiting on tax policy clarity—Potential changes in capital gains taxes may impact seller behavior.
Tariff uncertainty—With a new administration in place, international trade policies could disrupt supply chains.
Rate stability, but lingering caution—Interest rates have stabilized, but dealmakers are still adjusting expectations.
Despite these short-term hurdles, Barrett believes M&A volume will be up in 2025 compared to 2024, as more business owners seek liquidity events and private equity firms look to deploy capital.
“M&A activity is picking up after a slow couple of years, but dealmakers are still cautious. Buyers are being more selective, sellers are waiting on tax policy clarity, and private equity firms are adjusting to a higher cost of capital. The deals are still happening, but they require more creativity and flexibility.”
Where Investors Are Finding Value in 2025
One of the biggest trends in private equity right now is a flight to safety.
Given the economic uncertainty of the last two years, investors are prioritizing businesses with recurring revenue, essential services, and high customer retention.
Industries Seeing Strong Demand:
- HVAC, plumbing, and electrical services—Both residential and commercial, as these are mission-critical services.
- IT services and cybersecurity—Businesses with sticky customer relationships and long-term contracts are attractive.
- Fragmented industries ripe for consolidation—Private equity firms love industries where they can roll up multiple companies and create value through scale.
Barrett noted that private equity buyers are increasingly favoring well-prepared sellers. Businesses that have strong financial reporting, a clear growth plan, and well-organized operations are getting higher valuations.
For business owners considering a sale, he recommends:
- Starting the M&A preparation process 6 months to 2 years in advance.
- Ensuring financials are clean and transparent to avoid deal delays.
- Building a solid management team so the business can function without heavy owner involvement.
The bottom line? Higher-quality businesses are commanding better deals, while those that are unprepared may struggle to attract buyers.
The Role of Interest Rates and Tariffs in M&A
Interest Rates: The Market Has Adjusted
Over the past few years, rising interest rates disrupted deal-making, but stability in 2024 helped M&A activity rebound.
Barrett pointed out that it’s not just the absolute interest rate that matters—it’s the rate of change.
- In 2022-2023, uncertainty about how high rates would go caused buyers to hesitate.
- Now, with more predictability, buyers are adjusting their models accordingly.
Higher rates mean higher borrowing costs, which impact valuations. But with rate stability, banks are more comfortable providing leverage, which is a positive factor for deal flow.
Tariffs: The Wild Card for 2025
Tariffs are a major concern for dealmakers, especially in industries with international supply chains.
- Companies with manufacturing in Mexico or China are at risk of increased costs.
- Private equity firms do not like uncertainty—if a business’s margins could be impacted by new tariffs, buyers may hesitate.
- Industries with domestic supply chains are better positioned to weather tariff-related disruptions.
Barrett emphasized that while tariff uncertainty won’t stop all deals, it could delay some transactions as buyers assess the risks.
Private Credit vs. Private Equity: Shifting Capital Dynamics
One of the most significant changes in the M&A market is the rise of private credit.
- Private equity still has trillions in dry powder, but private credit funds are becoming more competitive in structuring deals.
- Private credit has surpassed $1 trillion in capital and is expected to grow even further.
- Banks have pulled back on lending, opening opportunities for private credit firms to step in and finance deals banks would have handled in the past.
“Private credit has completely changed the way deals are structured. Banks have pulled back on lending, and private credit funds have stepped in, offering more flexible terms and higher leverage. That’s opening up opportunities, but it’s also changing how buyers think about capital structure and risk.”
Private credit offers flexibility that traditional banks cannot, including:
- Higher leverage ratios.
- Looser covenants.
- Custom debt structures for complex deals.
This shift means that companies seeking financing for acquisitions have more options than ever before.
Why Texas and DFW Are Prime M&A Markets
Texas, and particularly DFW, continues to be one of the strongest M&A markets in the country.
Key Advantages of Texas for M&A:
- Business-friendly policies—No state income tax and pro-business regulations.
- Massive corporate relocation—Fortune 500 companies are moving headquarters to Texas, creating strong middle-market deal flow.
- Strong labor force—A skilled workforce with access to top universities and business hubs.
- Low cost of living—Compared to coastal cities, Texas offers affordable housing and operating costs.
- Central location—DFW’s geographic position and airport access make it a prime business hub.
Barrett noted that DFW has over 20 Fortune 500 headquarters, and as more corporations move in, middle-market businesses thrive alongside them.
Private equity firms see Texas as an attractive investment region, with new PE funds launching in the state every year.
“Texas has the fundamentals that investors and business owners want—no state income tax, corporate relocations, a pro-business regulatory environment, and a growing middle-market economy. If you’re looking to buy or sell a business, there’s no better place to be right now.”
Final Thoughts: What to Expect in 2025
Despite economic uncertainty, the M&A market in 2025 looks strong. Key trends to watch:
- Continued growth in private credit financing.
- More buyers prioritizing businesses with recurring revenue.
- High demand for companies in HVAC, IT services, and fragmented industries.
- A potential impact from tariffs, particularly in manufacturing.
- Texas remaining one of the top destinations for middle-market M&A.
For business owners considering an exit, preparation is key. The best deals will go to those who plan ahead, optimize financials, and position their companies for long-term success.
To stay ahead of M&A trends, check out the Dealmaker Hub.
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