M&A Trends 2025: What Small and Mid-Sized Businesses Need to Know

The mergers and acquisitions (M&A) market has significantly shifted in recent years. While deal volumes surged during the post-pandemic rebound, rising interest rates, inflation, and geopolitical uncertainty brought a wave of caution. 

Yet, despite these headwinds, small and mid-sized businesses have continued to draw attention from buyers, especially those looking for resilient business models, niche markets, and strong growth potential.

M&A activity is expected to pick up the pace. Early Q1 stabilized economic conditions, late Q1-early Q2 market volatility around tariff implications, a wave of retiring business owners with the most baby boomers turning 65 years old this year, and growing private equity interest set the stage for a busy year. 

This brings opportunities and challenges for small and mid-sized business owners, from accurate valuation and due diligence to negotiating favorable terms.

If you’re considering selling or acquiring a business, now is the time to act. NEO Business Advisors can guide you through every step of the M&A process with annual reports, insights, experience, and care.

Understanding M&A Trends in 2025

Current State of M&A (2023–2024 Recap) 

After a record-breaking run in 2021 and 2022, the mergers and acquisitions market cooled significantly in 2023. This reset was driven by economic pressures and shifting buyer-seller dynamics, especially in the small and mid-sized business segments.

Deal Activity

M&A volume in North America dropped by nearly 19% in 2023, with around 15,440 completed deals, a sharp decline from 19,089 in 2022. The slowdown brought overall activity back to pre-pandemic levels as dealmakers navigated a more cautious environment.

One of the biggest shifts came from middle-market private equity. U.S. middle-market Private Equity buyouts declined by 27% year-over-year, reflecting tighter access to capital and increased scrutiny during due diligence. High borrowing costs made leveraged buyouts more expensive, and buyers became more selective in their targets.

These conditions led to longer deal timelines, more withdrawn processes, and an overall decline in deal closure rates.

Small vs. Large Deals

A key trend over the past two years was the disparity between large and small deal activity. While the number of mega-deals (valued at over $1 billion) rose by 17% in 2024, the volume of small and mid-sized deals dropped by about 18%.

This “top-heavy” market reflects buyers’ tendency to focus on fewer, high-impact acquisitions amid uncertainty. On the other hand, many small business owners chose to delay selling, with roughly one-quarter of businesses valued under $50 million postponing sale plans until after the 2024 U.S. elections. This hesitation was influenced by concerns about economic stability, tax implications, and lower valuations.

As a result, smaller deals, especially those in the lower middle market, saw slower pipelines and limited buyer engagement during this period.

Valuations

Valuation multiples began correcting in 2023 after peaking in 2021. For many mid-market companies, multiples fell between 10% and 20%, reflecting a shift in buyer expectations due to the rising cost of capital and greater risk sensitivity.

• Middle-market enterprise value/EBITDA multiples have stabilized around 7.0×, maintaining a more conservative pricing range than their highs two years ago.
  
• In the very small business segment ($5M—$50M), multiples saw a modest recovery: the median EBITDA multiple rose to ~5.3× in Q2 2024, up from ~4.8× in 2023, but still trailing the 2021 peak.
  

Although higher interest rates have increased return requirements and applied downward pressure on prices, well-performing businesses in growth sectors, such as healthcare, tech, and specialized financial services, continue to attract premium offers. Buyers remain willing to pay more for companies with predictable cash flow, strong customer bases, and low operational risk.

Key Trends Shaping M&A in 2025

1. Technology & AI-Driven Acquisitions 

As we are in 2025, technology acquisition has emerged as one of the most strategic drivers of M&A activity, particularly among companies looking to accelerate digital transformation. 

Businesses are no longer acquiring solely for market share or revenue expansion. They’re actively targeting companies with advanced digital capabilities to future-proof their operations.

Across industries, acquiring cutting-edge technologies such as artificial intelligence (AI), automation, machine learning, and cloud infrastructure has become a high priority. Companies are also looking to secure technical talent, often called “acqui-hiring,” to fast-track innovation and reduce the cost and time involved in-house building capabilities.

According to recent data, 64% of business leaders plan to use M&A to strengthen their AI capabilities in the coming year. These deals often focus on acquiring firms with proven applications in predictive analytics, generative AI, data security, and workflow automation.

AI’s Dual Role in M&A

AI is not just a target for acquisition, it’s also becoming a tool that transforms how deals are executed. Dealmakers are leveraging AI to streamline critical phases of the M&A lifecycle, including:

• Target identification and screening using predictive models
  
• Due diligence, where AI helps analyze large datasets faster and more accurately
  
• Valuation and integration planning, with scenario modeling and risk analysis
  

As buyers become more digitally mature, M&A strategy is evolving to reflect the need for tech-forward, scalable, and defensible business models. This shift will likely continue shaping deal flow and valuations this year.

2. ESG (Environmental, Social, and Governance) Factors in M&A 

In recent years, ESG has evolved from a checkbox in corporate reporting to a strategic lever in mergers and acquisitions. This year, its influence on deal-making is more pronounced than ever. Nearly 70% of M&A executives now say a target’s ESG profile is a top priority when evaluating potential acquisitions.

Why ESG Matters in M&A Today

Buyers are no longer interested in just financial performance. They want to understand how a company operates, treats people and the planet, and whether its governance structure is sound. ESG due diligence now includes:

• Environmental risks, like carbon emissions, waste management, or climate change resilience
  
• Social factors, such as employee well-being, workplace diversity, and community impact
  
• Governance standards, including transparency, board structure, and ethical practices
  

Companies that score well in these areas are seen as responsible and valuable. Firms with strong ESG track records can attract higher valuations and greater buyer interest. For example, renewable energy companies have traded at EBITDA multiples in the mid-teens. In contrast, legacy oil and gas companies remain in the single digits, reflecting market demand and direct investment.

On the flip side, weak ESG metrics can be a dealbreaker. Environmental liabilities, labor violations, or governance issues can lead to lower offers, stricter deal terms, or big deals falling through altogether.

Looking Ahead: ESG Integration in 2025

As the M&A environment matures, ESG becomes part of the deal’s structure and post-close roadmap. Acquirers are:

• Tying financing terms to ESG goals (e.g., green bonds, sustainability-linked loans)
  
• Embedding ESG KPIs into post-merger integration plans
  
• Setting long-term sustainability targets to align the combined entity with stakeholder expectations
  

3. Regulatory & Policy Changes Impacting M&A 

The regulatory environment is always a key factor in M&A strategy, but this year, it will be a major variable. 

Some are optimistic that the political shift could usher in a more business-friendly tone, including potential tax incentives and streamlined approval processes. Others are taking a more cautious, “wait-and-see” stance, knowing how quickly the rules can change.

Sector-Specific Impacts

A more relaxed regulatory climate could unlock a wave of deal values in industries like finance, pharmaceuticals, data centers, and energy. These sectors often face intense scrutiny around consolidation, pricing, and market control. If the favorable regulatory environment climate softens, firms in these spaces may accelerate M & A plans to capitalize on easier pathways to approval.

However, antitrust scrutiny is expected to remain high in big tech and healthcare. These sectors have already seen heightened enforcement actions over the past few years, and large-scale combinations of financial sponsors may still trigger in-depth reviews, especially where market dominance or consumer impact is a concern.

Cross-Border Considerations

When it comes to international deals, the pressure ramps up. Regulatory bodies such as CFIUS (Committee on Foreign Investment in the U.S.) have become more vigilant, especially for transactions involving sensitive data, critical infrastructure, or advanced technologies. 

Foreign buyers face longer review timelines, more invasive national security assessments, and even deal rejections if strategic risks are flagged. Trade policy shifts and foreign investment restrictions including tariffs or country-specific regulations remain wildcards for deal planning and market timing.

4. Cross-Border M&A and Foreign Buyers

International interest in U.S. mid-sized public companies is rising sharply, even amid geopolitical complexities. In 2023, nearly 42% of global M&A deal volume involved a foreign potential buyer or target, signaling a shift toward greater cross-border dealmaking. The U.S., in particular, remains attractive to global acquirers due to its stable economy, capital markets, venture capital, innovation-led sectors, and strong consumer base.

European buyers continue to see the U.S. as a growth hub, actively targeting technology, industrials, and consumer goods firms. These acquisitions offer access to scale, diversification, and innovation that’s often hard to replicate domestically.

Meanwhile, Asian buyers, especially Japanese firms, are accelerating outbound activity, with Japan’s overseas M&A rising 36% year-to-date by Q3 2024, totaling around $45 billion. Recent acquisitions, such as a United States-based manufacturing business in Ohio, reflect a focus on high-quality assets in advanced manufacturing and IP-driven sectors.

Investors from Canada and the Middle East also increase their presence, often through private equity funds or joint ventures, targeting companies with defensible technology, brand strength, and global scalability.

That said, cross-border deals must understand the challenges for economic growth. Geopolitical tensions, foreign investment reviews (e.g., CFIUS), and protectionist policies can complicate approvals, especially in sensitive sectors like tech and infrastructure.

Despite the hurdles, the momentum is clear. This year, U.S. mid-market companies, particularly those with differentiated offerings, are expected to remain highly attractive to international buyers seeking long-term strategic footholds in resilient markets.

Manufacturing Sector M&A Trends

Manufacturing M&A: What’s Driving Deals in 2025?

1. Supply Chain Reshoring & Vertical Integration 

Manufacturers view M&A as a key tool for restructuring and stabilizing supply chains. After years of disruptions, from global pandemics to geopolitical tensions, companies prioritize reliability over cost efficiency. 

Acquiring domestic suppliers is emerging as a fast and effective way to shorten supply chains, gain control over key inputs, and reduce exposure to overseas volatility.

The Rise of Vertical Integration

Many companies are pursuing vertical integration, acquiring lower-tier suppliers or logistics partners to tighten operational control. This allows for better coordination, improved margins, and faster turnaround times. It also reduces the risks of multi-country sourcing, fluctuating tariffs, and freight delays, acting as the new normal.

Policy Support Fuels Domestic Investment

Government incentives are accelerating this fundamental shift. U.S. industrial policies like the CHIPS Act (supporting semiconductor manufacturing) and the Inflation Reduction Act (boosting clean energy production) encourage firms to invest domestically. 

These policies don’t just support new construction, they also create tailwinds for M&A involving U.S.-based suppliers and manufacturing operations.

M&A deals in 2025 are likely to focus on reshoring capabilities, acquiring factories, and filling supply gaps created by international instability. Manufacturers with a strong U.S. footprint will become increasingly attractive targets.

2. Automation & Industrial Technology M&A 

As competition intensifies, companies are not just adopting advanced manufacturing technologies, such as automation, but acquiring them outright. 

There’s a growing “arms race” to build lights-out factories, facilities that run with minimal human intervention using robotics, AI, and intelligent systems. Acquisitions are now a shortcut to reaching that goal.

Acquiring to Accelerate Innovation

Instead of building solutions from scratch, industrial firms acquire companies with specialized automation capabilities. Targets often include businesses focused on robotics, 3D printing (additive manufacturing), machine vision, and industrial AI. These technology acquisitions in 2025 will help buyers scale advanced technologies quickly while tapping into highly demanded engineering talent.

Private equity firms with industrial portfolios also play a major role, snapping up automation vendors that can be embedded across multiple portfolio companies to enhance productivity and lower operating costs.

Labor Shortages as a Catalyst

When you acquire companies that reduce the need for manual input, manufacturers can future-proof their operations and maintain output even with a smaller workforce.

As Industry 4.0 accelerates, M&A activity in 2025 will remain technology-driven. Deals will increasingly center around automation software, digital twins, sensor networks, and AI-enhanced production. These investments offer acquirers a path to greater scalability, quality control, and long-term cost reduction.

3. Private Equity vs. Strategic Buyers in Manufacturing 

Both strategic buyers and PE firms are active in manufacturing, but they’re motivated by different goals. Strategic acquirers, often established manufacturers, led roughly 61% of manufacturing deals year-to-date in 2024. 

Their primary aim? Growth through integration. These buyers are acquiring to expand market share, streamline supply chains, or strengthen their product offerings, often through vertical or horizontal integration.

A common move is acquiring a competitor to enter new regions or a supplier to gain pricing control and reduce reliance on third parties. 

Private Equity’s Consolidation Playbook

Meanwhile, PE firms see manufacturing as fertile ground for platform building. They’re aggressively pursuing add-on acquisitions, rolling up smaller specialty manufacturers into larger, more efficient operations. PE funds such as MiddleGround Capital have been particularly active, targeting sectors like industrial technology, aerospace, and EV supply chains.

These financial buyers are drawn to predictable industrial demand and operational improvement opportunities, such as modernizing outdated processes, upgrading technology, or professionalizing management.

This year, strategic buyers will continue seeking scale and innovation, while PE firms will deploy record dry powder to secure quality manufacturing assets. The result? a highly competitive environment and strong demand for well-run manufacturing businesses, no matter their size or specialty.

4. Valuations & Outlook for Manufacturing M&A 

Manufacturing M&A experienced a dip in volume during 2023 and early 2024, largely due to higher interest rates, inflation, and elevated input costs. These headwinds impacted financing and widened valuation gaps between buyers and sellers.

However, the slowdown appeared temporary with industrial production stabilizing and economic sentiment improving in early Q1, leading to an increase in deal activity, followed abruptly by a slowdown in late Q1-early Q2 with market volatility and uncertainty around tariff implications. 

We still forecast a resurgence of deal activity this year with a focus on reshoring, reinvestment, and bolstering US manufacturing and industrial capacity.

Valuation Trends

Manufacturing deal valuations have remained fairly resilient. EBITDA multiples range from 6× to 8×, depending on the sub-sector and company performance. Deals in automation, defense, and advanced manufacturing continue to command premium multiples thanks to strong demand, specialized capabilities, and government backing in areas tied to national security and innovation.

Sectors Driving Growth

Looking ahead, several manufacturing niches are poised for elevated deal flow:

• Industrial technology. Driven by the shift toward smart factories and Industry 4.0 tools.
• Aerospace and defense. Benefiting from geopolitical priorities and increased government spending.
• Electric vehicles and battery production. A key focus for consolidation across the automotive supply chain.
• Specialty material. Tied to innovation in semiconductors, clean energy, and high-performance manufacturing.
  

With renewed confidence, ongoing reshoring efforts, and sustained demand in core industrial sectors, manufacturing M&A is set for a strong rebound this year, attracting both strategic buyers and private equity firms looking for long-term value.

M&A Data & Market Outlook for 2025 

After a noticeable dip in 2023, the global M&A market is on track for a strong, but bumpy rebound. Driven by stabilizing economic conditions in early Q1, tariff driven market volatility in late Q1-early Q2, increased interest in reshoring manufacturing and diversifying risk from foreign suppliers, easing interest rates, and strong private equity interest, 2025 is already shaping up to be a more active year, particularly in the middle market M&A. Here are the key trends and data points shaping that outlook:

Deal Volume and Value

• The value of global M&A deals in 2023 totaled $3.2 trillion, down ~15% year-over-year and the lowest since 2013.
  
• North America mirrored this with a 19% drop in deal volume.
  
• A rebound began in late 2024, with deal activity rising ~13% year-over-year.
  
• 2025 global M&A volume is projected to grow ~10%, led by mid-market transactions.
  

Private Equity “Dry Powder”

• Global PE firms are holding $2 trillion in uninvested capital.
  
• PE-backed M&A is forecast to grow ~16% in 2025, outpacing corporate M&A (~8%).
  
• Expect aggressive bidding in mid-market deals, aided by improving credit markets.
  

 Valuation Multiples

• Mid-market EBITDA multiples range between 6×–8× (sub-$ 500 M enterprise value).
  
• Smaller companies (<$5M) typically trade at 3×–5×, while lower mid-market ($5M–$50M) see ~4–5×.
  
• Premiums remain for recession-resistant sectors like tech and healthcare.
  
• Falling interest rates may lift valuations in competitive auctions.
  

Deal Structures & Financing

• 76% of 2023 U.S. PE deals were add-ons to existing platforms.
  
• Creative structures, earn-outs, seller financing, and equity rollovers are bridging valuation gaps.
  
• Lending activity improved in late 2024, and further rate relief in 2025 may ease deal financing.

Navigating M&A in 2025 

Deal activity is picking up and creating strong opportunities for business owners. Buyers are actively looking for well-run companies, and this renewed momentum is especially promising for those considering an exit or a strategic acquisition.

Manufacturing, tech, and ESG-driven businesses are seeing the most interest. Companies offering automation, sustainable practices, or specialized capabilities stand out in buyer conversations. If your business fits one of these profiles, now could be the right time to explore your options.

That said, preparation is key. To make the most of this environment, owners should ensure their financials are in order, operations are streamlined, and growth plans are clearly defined. Buyers are doing deeper diligence and prioritizing businesses with long-term potential.

Whether you’re considering selling in the next 12 months or positioning for future growth, having the right strategy and support can make all the difference.

NEO Business Advisors is here to help you make informed decisions and get the best outcome from your M&A journey. If you’re ready to start planning, connect with our team today, check out our case studies and take the first step toward a successful deal in 2025.