The Fed Holds the Key to Unlocking Pent-Up M&A Demand
M&A doesn’t need a roaring bull market to thrive — but it does need clarity. In the current environment, there’s one signal more important than any other: the timing of the next Federal Reserve’s interest rate move.
Momentum had been building for a broader pickup in M&A activity earlier this year — until new tariff threats introduced fresh uncertainty into the macro landscape. For buyers and sellers already contending with high borrowing costs, the prospect of renewed trade tensions was another reason to hold fire. However, more recently, investors appear increasingly willing to look past those concerns, focusing instead on a future where capital becomes cheaper and pricing gaps easier to bridge.
The encouraging news is that we’ve seen a pickup in corporate dealmaking in recent months. Sanofi’s $9 billion acquisition of Blueprint Medicines, Salesforce’s $8 billion play for Informatica, Motorola Solutions’ $5 billion acquisition of Silvus Technologies, and Dick’s Sporting Goods $2.4 billion purchase of Foot Locker are just a few notable examples. These transactions underscore a growing optimism among strategic buyers looking to build scale and sharpen their competitive edge.
Despite a slower-than-expected start to 2025, the data shows encouraging signs: US M&A volume through June reached approximately $965 billion, up 15% from $840 billion in the same period last year and a striking 58% jump from $611 billion in the first half of 2023. Sponsor deals accounted for 38% of that total, compared to 29% a year ago — indicating a modest resurgence in private equity-backed activity, even if it remains uneven.
If we zoom out, it’s clear that a full-spectrum M&A market recovery hasn’t yet taken hold. The engine that drives much of the middle-market and sponsor-led activity—private equity — is still largely on the sidelines. And the reason is straightforward: price.
Private equity firms did a lot of buying during the ultra-low interest rate era of 2020 and 2021. Many of those deals were priced aggressively, reflecting the cheap capital and elevated valuations of the moment. Fast forward to today, that same cohort of firms now faces a valuation mismatch.
The cost of capital has gone up sharply. The exit environment is uncertain. Many funds are holding on to portfolio companies far longer than they normally would — sometimes six or seven years or more. And the dizzying policies and rhetoric around tariffs have paralyzed many industries that rely heavily on imports and can no longer accurately predict costs.
That creates pressure. At last count, there were roughly 29,000 portfolio companies sitting inside private equity portfolios globally. Those assets need to be monetized. With the current interest rate environment, buyers and sellers are still struggling to meet in the middle. The market is open but not yet flowing.
Markets are increasingly pricing in the first Fed rate cut for September, followed by a second easing before year-end, as hopes for a July move have dwindled.
Despite pressure from the Trump Administration to move quickly, Federal Reserve Chair Jerome Powell has emphasized that the Central Bank will remain data-dependent – watching inflation, labor markets and the evolving tariff landscape closely before taking action. Until monetary policy shifts meaningfully, and regulatory policy solidifies, many deals may stay parked.
In the meantime, corporate buyers are capitalizing. Without the competition from private equity, strategic acquirers have more room to operate — and more time to think creatively. They’re not just looking for bolt-on deals. Many are using this moment to reposition for the next cycle, investing in technology, brand equity, and customer acquisition. It’s important to remember that strategic deals drive headlines, while private equity drives volume.
Inside the M&A world, the pipeline is robust. There’s no shortage of pitch activity, diligence, or deal prep happening across the sponsor landscape. While earlier tariff headlines put a chill on sentiment just as activity was poised to ramp, many private equity firms are now actively grooming companies for sale — betting that a more accommodating rate environment will bring down the cost of capital and help bridge stubborn pricing gaps.
However, preparation isn’t execution. Until financing becomes more attractive and the bid-ask spread narrows, many of those transactions will remain on hold. The appetite is there. What’s missing is the catalyst.
Ultimately, I believe the M&A recovery is not a matter of if, but when. Strategic buyers will continue to move. The market’s full potential — especially at the sponsor level — remains tightly tethered to interest rates.
When the Fed moves, the market will too.
