The first half of 2025 was not defined by collapse, but by caution. M&A activity in the United States slowed as businesses, investors, and lenders worked through a ton of macro uncertainty. Yet underneath the slowdown, signs of resilience and renewal emerged, setting the stage for a more active second half of the year.
From January to June, 2,858 M&A transactions closed in the U.S., down 14% from the same period in 2024. Smaller transactions under $500 million saw an 18 percent decline, while larger deals increased by 21%. This bifurcation in the market highlighted the divide between private equity and strategics with committed capital, and smaller businesses that struggled to get deals across the line.
Uncertainty around tariff policy, delayed legislative action, and unclear tax direction under the Trump administration contributed to the slowdown. With economic conditions softening and the job market showing early signs of strain, many business owners chose to postpone major decisions around hiring, capital expenditures, and exits. Private equity firms pulled back on divestitures and new platform investments as they positioned themselves in ‘wait and see’ mode. Credit providers tightened underwriting and slowed deployment.
While deal counts dropped, overall deal value increased. Total U.S. M&A volume rose to $871 billion in the first half of 2025, a 7% increase from the $816 billion reported in the same period last year. This growth was driven by a surge in mega deals, which often pull smaller transactions back into the market in their wake. These large deals helped stabilize overall valuations and offered a proof point for confidence returning to the market.
In the lower middle market, valuation multiples dipped but remained within historical norms. EV to EBITDA multiples fell to 6.61x, down from 7.11x in 2024. EV to sales also declined slightly, from 1.16x to 1.11x. Still, quality companies with recurring revenue, strong margins, and defensible market positions continued to attract interest from both strategic buyers and financial sponsors.
Multiples in 2025 varied widely by industry. Healthcare and business services continued to command premium pricing, with median EBITDA multiples of 9.0x and 8.3x respectively. These sectors benefit from recurring revenue models and defensible growth, characteristics that investors prize in uncertain times. By contrast, the technology sector saw a drop in median multiples to 5.7x, reflecting investor skepticism around profitability and long-term cash flow certainty. Manufacturing remained steady at 6.6x, while distribution ticked up to 7.5x.
Perhaps the most overlooked tailwind in early 2025 was the improvement in credit markets. Debt capacity increased modestly compared to 2024, with senior and junior lenders offering higher advance rates and slightly more aggressive leverage. Pricing also improved. For borrowers with EBITDA above $10 million, senior debt spreads compressed by 25 to 50 basis points. Mezzanine debt became more affordable, and non-bank lenders remained active, particularly in unitranche structures.
The market for "story credits" (deals that require a more nuanced understanding of the business model or financial trajectory) also improved, especially in the first quarter. This suggests a greater appetite among lenders to lean in when the narrative is compelling, even if the numbers are not pristine.
As the calendar turned to July, the outlook began to improve. The passage of the Build Back Better legislation, progress on trade deals, and deregulation efforts helped remove some of the policy overhang that had stalled decisions earlier in the year. A widely expected interest rate cut from the Federal Reserve in September is likely to further unlock activity.
The critical difference between now and prior downturns is capital availability. Private equity dry powder remains near all-time highs, and corporate buyers are operating from strong balance sheets. The hesitation in H1 was not due to a lack of capital. It was driven by a lack of clarity.
As confidence returns and borrowing becomes cheaper, many buyers will return to the market. Private equity sponsors are expected to re-engage on roll-up strategies and strategic acquirers are looking to consolidate across verticals where they already operate.
For business owners, the message is clear. Even in a soft market, the right buyer can emerge at any time. The businesses that command premium multiples will be the ones that have done the hard work in advance. Clean financials, clear growth narratives, and a defensible market position. In this market, being prepared is not optional. It is the differentiator.