M&A Today: Why 2025 Is Defying Expectations

Jeff Jacobs (00:02):

Welcome to Solomon Connects. This is our M&A monthly podcast where we break down the key market forces shaping deal activity. I’m Jeff Jacobs, head of M&A and COO of investment banking at Solomon Partners.

Chris Moynihan (00:16):

And I’m Chris Moynihan, a director in the M&A group. Today we’ll be taking a look at how the year has played out so far from an M&A perspective and what we expect in the back half of the year. Jeff, let’s kick things off with the big picture. Despite a lot of noise earlier this year about M&A volumes, they’re actually up pretty meaningfully. What’s behind the strength in these numbers?

Jeff Jacobs (00:39):

You know Chris, it’s actually been a surprisingly strong year for deal activity so far, and that’s despite the impact of some mixed economic data. US M&A volumes are up 23% year over year. That’s through the end of August. What’s notable is that this growth came despite the dip in activity that we saw a couple months back. Amid tariff concerns and all the commotion around Liberation Day strategics have been the primary drivers of this growth. We’ve seen a number of mega deals, those deals that we would define as 25 billion and larger, and these deals show the confidence that CEOs and boards have had to make serious transformational bets and real commitments that go beyond some of the normal course bolt-on acquisitions that we otherwise see.

Chris Moynihan (01:24):

It’s definitely a big shift from the beginning of the year, but it’s not just the strategics, it’s also the sponsors too, right? Especially on the exit side. What’s happening there? You’re seeing more exit activity.

Jeff Jacobs (01:34):

We are starting to see more sponsor exits totaled roughly 370 billion in the first half of the year. That’s actually the highest first half total we’ve seen since 2022. Nearly 45% of that came from deals over 5 billion, which tells you essentially that larger funds are the ones really finding opportunities to realize liquidity and those exits are being driven by pressure to return capital to LPs, especially with median hold periods now at more than six years. I wouldn’t say we’ve hit a full blown sellers market yet, but for high quality assets, there’s definitely opportunity out there.

Chris Moynihan (02:13):

Let’s talk about private equity more broadly. Large cap PE seems to be driving most of the volume. What’s fueling that activity and how sustainable is it?

Jeff Jacobs (02:22):

Well, large PE has been the engine of sponsor volume this year, deal volume in that segment, and we define it roughly as 3 billion and higher is up more than 60% year over year. And you’ve seen a number of deals like this. Sycamore acquired Walgreens for 23 and a half billion. 3G did a deal with Sketchers for over 9 billion. Clearlake had a buyout of Dun and Bradstreet for about seven and a half billion. These are all examples of sponsors stepping up in size. That’s really where the volume is coming from. And remember, there’s still roughly 3 trillion in dry powder across the industry. So no surprise that some of these bigger deals are getting announced

Chris Moynihan (03:00):

In the middle market, the smaller funds, it seems like they’re facing a different set of dynamics. What are you seeing in that part of the market?

Jeff Jacobs (03:08):

For middle market PE transactions, the performance has been mixed. Interestingly, if you bifurcate deal sizes into those less than a billion and then those between a billion and 3 billion, you really start to get a clear picture of what’s driving activity. So as we said earlier, deal volume for transactions above 3 billion is up north of 60%, about 62%. So strong performance in large cap PE. And then if we look at deals between a billion and 3 billion, performance is still good. Volumes here are up just under 20% from 2024. But what’s interesting is if you look at small to mid-cap, meaning deals between a hundred million and a billion, we see this stat fall negative. Volume here is down in the mid-teens, down 17% year over year. So pretty dramatic and frankly, pretty consistent with what we’ve seen and what we’ve been talking about. Sponsors have largely been sidelined for these small to mid-market deals. Interestingly, also, if we drill down into some of this middle market activity, the sizes for deals that are getting done are actually trending larger. Now, that’s not surprising either. The theory being that private equity sponsors today are mostly focused on selling a plus assets. Those are the companies that have grown the most. Those are the ones that are commanding the biggest premium in today’s market.

Chris Moynihan (04:32):

So let’s return to one of the themes you mentioned at the beginning, strategic consolidation. We’re seeing some major moves this year. What’s driving that activity and where are you seeing the most momentum?

Jeff Jacobs (04:43):

We’ve certainly seen some interesting combinations this year, strong balance sheets, peak equity values, a bit of a softer regulatory environment. All of that has allowed strategics to remain active acquirers. We’ve also seen strategics use industry consolidation as a way to extract synergies and boost margins as a countermeasure to getting squeezed on tariffs. And frankly, the macro environment has also likely led to more corporate divestitures. Divestitures, from what we’ve seen, are actually up particularly for underperforming assets where the high interest rate environment has really made it too costly to hold on to anything that’s non-core. So the bottom line is these are moves about focus, about efficiency and about long-term positioning, and we expect that trend to continue going into 2026.

Chris Moynihan (05:31):

Since you mentioned it, let’s talk about 2026. What are you expecting and what should deal makers be on the lookout for?

Jeff Jacobs (05:39):

I think we are really well positioned for the rest of this year and going into next year. Sponsors will continue to reenter the market, particularly as they feel pressure from LPs to monetize top assets and to return capital. Both of these really necessary occurrences before any of these funds can on new fundraising strategics, as we discussed, are leaning into consolidation and rationalization, especially in sectors facing cost pressure. And while we’re not back to 2021 levels, we are starting to see real momentum in M&A. And I would say if the current pace holds Q4 could be one of the busiest periods we’ve seen in years, I’m also really encouraged that we’re seeing activity across sectors. Activity is not limited to only tech or only healthcare. I think we’re going to see a more broad-based rebound in M&A as we head into 2026.

Chris Moynihan (06:30):

Jeff, thank you as always for your insights. Really enjoyed hearing what you have to say about the M&A market so far this year. Be sure to check out SolomonPartners.com for more of these insights and we’ll be back next month with another M&A update.

Jeff Jacobs (06:44):

Thanks Chris. And thank you to our listeners for tuning in.