By Paul B. Finch, MBA & Susan Finch, MS, MBA | 1/29/2025

Merger and Acquisition (“M&A”) activity ended the year 2024 with meager increases over the previous 2023 yearly period, both in terms of deal market value and deal market volume, with a mere 15% increase in market value year-over-year and a mere 7% increase in market volume year-over-year[1]. This is well below the deal market value and deal market volume high point reached in 2021 which was fueled primarily by the historically low interest rates at that time.

At a more granular level, Strategic M&A Investor transactions (defined as companies combining or acquiring other businesses to achieve a strategic purpose such as expanding market share, acquiring new technologies and/or market diversification) increased 12% in deal market value and 7% in deal market volume which was at or below the median for all transactions.

Conversely, Financial Investor transactions (non-institutional Investors) and Venture Capital Investor transactions (institutional investors) increased in deal market value by 29% and 30% respectively and increased in deal market volume by 12% and 9% respectively, well above the median for all transactions. This is likely due to the fact that Financial Investors and Venture Capital Investors tend to be more interest rate sensitive than other categories of investors because lower interest rates for these investors have the overall effect of increasing cash flow and deal value accordingly. This being the case, Financial Investors and Venture Capital Investors benefited accordingly from the Federal Reserve’s (“Fed”) interest rate cuts in the second half of 2024 (100 basis point reductions from September 2024 through December 2024) and likely explains why their deal market value and deal market volume increased above the median for all transactions in 2024.

Likely Deal Drivers in 2025

Looking forward, we expect M&A activity to be heavily influenced in 2025 by the following factors: (i) the potential for regulatory relaxation under the new Trump Administration (a positive for M&A transactions); (ii) the potential for increases in tariffs under the new Trump Administration (a negative for M&A transactions because tariffs can directly increase inflation); and (iii) interest rate reductions by the Fed (a positive for M&A transactions). Because it is hard to anticipate the effects of the new Trump Administrations policies regarding regulatory and tariff issues, we will focus on the Interest Rate Outlook, sans any tariff effects, as being a primary factor affecting M&A activity in 2025.

Interest Rate Outlook

Recent Fed Statements suggest that economic conditions are such that the Fed is ready to take a break from rate cuts, at least for the time being. Fed Chair Jerome Powell has described the Fed’s strategy for rate reductions as an effort to recalibrate borrowing costs to a more “neutral” setting. This naturally begs the question of what constitutes “neutral” in the current economic environment.

The neutral rate of interest is considered to be a rate that keeps the economy at full employment with stable prices (or stable inflation). Currently the Fed seems content with economic growth which is increasing at an annual rate of 3.1 percent per the most recent measurement of the domestic economy as of the third quarter of 2024[2]. However, the Fed has targeted domestic inflation to be stable at 2.0%, whereas the most recent measure of domestic Inflation is currently growing at an annual rate of 2.4% as of November 2024[3].

This being the case, it appears that the Fed considers the current rate of interest to be somewhere below “neutral” and, as such, it seems unlikely that the Fed is prepared to reduce interest rates in the near term until such time as inflation eases which could be difficult given the headwinds of what is otherwise semi-robust economic growth.

Final Thoughts

Many analysts see a rebound in M&A transaction activity in the second half of this year as interest rates prospectively begin to ease. Accordingly, the prospects for short-term improvements in macroeconomic conditions are causing many prospective sellers to wait for lower interest rates in the belief that valuations will increase.

That said, if macroeconomic conditions stall out in the second half of 2025, or become worse, many of these target acquisitions may be forced to accept lower valuations in order to make otherwise necessary deals.

Paul B. Finch, MBA, is co-founder and Executive Director of Benchmark Solutions, Inc. and is an accomplished Strategic Financial Advisor. Professionally, Paul has focused his career on the various facets of corporate finance that revolve around the creation and measurement of equity value for his clients. Paul’s work includes both domestic and international merger and acquisition engagements as well as projects specifically designed for the purpose of increasing profitability, earnings quality, and growth prospects (while limiting risks and exposures) for his clients. Paul is a recognized subject matter expert in Financial Planning & Analysis, Capital Acquisition, and Business Valuation as well as Merger and Acquisition Advisory and has published many articles pertaining to these topics. You can contact Paul at paul.finch@benchmarksolutions.us.com

Susan Finch, MS, MBA, is co-founder and Executive Director of Benchmark Solutions, Inc. and is an Economist. Susan has focused her career on the various facets of corporate finance that revolve around historical, current and predictive views of business operations for clients in order to assess potential returns on investment in Merger and Acquisition transactions as well as for Strategic Financial Planning. As an economist, Susan has expertise in Financial Analysis, Financial and Economic Modeling, Financial Planning and Financial Decision Making. Susan also has considerable experience in Econometrics for the purpose of understanding forward-looking estimates of economic growth, demand, and inflation and their potential impact on earnings quality. You can contact Susan at susan.finch@benchmarksolutions.us.com

Benchmark Solutions, Inc. is a boutique business advisory that provides high quality Financial Planning and Analysis, Business Valuation, Capital Acquisition, and Merger and Acquisition Advisory services to some of the most innovative, creative, existing and emerging companies in the agriculture, beverage, healthcare, and hospitality industries.

[1] Looking Back at M&A in 2024, Bain & Company (December 2024)

[2] Real Gross Domestic Product, Third Quarter of 2024 Third Estimate.

[3] Personal Consumption Expenditure Price Index, November 2024