Dealmakers See Turning Tide for M&A in 2025
Speakers at ACG Chicago’s Midwest Capital Connection expressed cautious optimism about the market, with insights for sellers and business owners on how to maximize value
The M&A market appears to be gaining steam in the final stretch of the year, as conditions for dealmaking improve, according to speakers at ACG Chicago’s Midwest Capital Connection last month.
Conference attendees predicted an uptick in deal volume at last year’s conference, too, although that largely didn’t materialize in 2024, noted Becca Schlagenhauf, a principal at Baird Capital, during the Funding Business Growth panel at the conference, which was held at the Hilton Chicago on Oct. 29-30.
Recently, however, the winds have begun to turn. “That’s changed for us in the past six weeks. There has been almost an unlocking in the market,” said Schlagenhauf, who added that Baird’s U.S. and U.K. private equity teams, which invest out of the same fund, currently have multiple new opportunities under letter of intent.
Figures from GF Data, an ACG company that provides aggregate data on private middle-market transactions, also showed improvement in M&A activity.
Event Recap
WHAT: ACG Chicago’s Midwest Capital Connection
WHERE: Hilton Chicago
WHEN: Oct. 29-30, 2024
THE TAKEAWAY: As the winds of M&A begin to turn more favorable for dealmakers, speakers at this year’s Midwest CapCon looked towards 2025 with predictions for exits, dry powder deployment, AI adoption and more.
Photo by Stephanie Jensen.
Deal volume in the first half of 2024 was higher than both 2022 and 2023, based on deal information from GF Data’s 320 private equity contributors, said Bob Dunn, managing director of GF Data, during the event’s Deal Dynamics panel. Annualized figures showed a 23% increase in deals in 2024 compared with 2023.
Panelist Michael Norton, director of business development at investment bank Houlihan Capital, said he’s seen pitch activity jump significantly. He’s also observed growing fatigue among business owners, who are now eager to transact. “They probably wanted to sell in 2020, but things happened, and they’re really ready to go now,” he said.
The pace of processes this year has been longer than in years past, Norton added. “It’s been very, very slow getting deals across the finish line, and getting deals signed up,” he said, citing macro-level factors like the U.S. election, along with valuation disagreements and extended due diligence timelines, as contributors. However, he noted, “The last few weeks and months have been markedly better.”
Private equity buyers, meanwhile, are feeling pressure to exit their longer-held investments and return money to LPs, which could spur M&A activity, noted Ursha Magajne, shareholder at law firm Polsinelli. “I think that’s part of the momentum that’s going to happen next year,” she said.
(Business owners) probably wanted to sell in 2020, but things happened, and they’re really ready to go now.
Michael Norton
Houlihan Capital
PE firms are also anxious to deploy unspent capital. This year, refinancings and financing for tuck-in acquisitions were up, according to Holly Smyth, managing director at B. Riley. She expects to see more movement in the leveraged buyout markets and more acquisition financing as private equity firms put their dry powder to work. “I think there will be more momentum going into 2025,” she said.
When Reviewing Earnouts, Seller Beware
Reaching agreement on price has been a sticking point for buyers and sellers over the past few years, contributing to the M&A slowdown. Earnouts have become a popular way to bridge that gap.
During the Deal Dynamics panel, Norton estimated that one-third of deals he saw in 2018 had an earnout component that required scrutiny, whereas today 80% have some kind of contingent consideration. He added that earnouts have become increasingly complex. “We have a whiz-kid guru Monte Carlo analyst; we should not need to employ him to analyze a general earnout.”
Magajne recommended that sellers carefully review how the earnout is structured to avoid leaving the terms open to interpretation later. “That’s where it becomes litigious,” she said, adding that one-quarter of earnouts end up legally contested, according to some figures.
Artificial Intelligence in 2025
A trend on everyone’s mind for 2025 is artificial intelligence, and how the technology will shape business operations in the coming year.
During the Midwest Capital Connection’s opening panel—How AI and Cybersecurity Are Reshaping M&A—panelists spoke about the technology’s progression and how leaders can leverage its potential.
Jason Molesworth, CEO of Accelerated Innovation, predicted that companies will see meaningful impact from AI first in customer support interactions, early-stage prospecting, technical support and marketing. “We’re moving away from ‘this is cute, this is a more pleasant interaction,’ to ‘can we create and monetize products that drive top-line growth? Can we accelerate revenue generation? Can we take costs significantly out of our operating model? And how does that impact and translate to our bottom line?’”
He expects the current moment is a make or break one for businesses to deploy AI. “We’re going to look back in three to five years and say that this is the No. 1 driver of business growth and business valuation growth for the groups that are early and do it well,” said Molesworth, who added that businesses will need structure and focus to achieve that.
Successful organizations must make the case for fundamental business value and align their team internally, Molesworth said, with a clear and focused vision and internal alignment. He cautioned against pursuing too many directions and advised narrowing the focus areas for AI usuage down to five. “2024 was a year of experimentation,” he said. “2025 needs to be the year of impact.”
A challenge for lower middle-market businesses with smaller budgets will be finding an AI solution that meets their needs while also managing costs.
“That’s the paradox: AI saves a ton of IT dollars, and it’s really expensive,” said panelist Rick Schweiger, VP, technical operations, at GTreasury.
Ascend Technologies sponsored the Oct. 30 panel sessions during the Midwest Capital Connection.
Katie Maloney is Vice President of ACG Media.
Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.
