February 2025
Key Trends for Business Owners
BY V&R ADVISORY TEAM
As we move through the first half of 2025, business owners in the lower-middle market must navigate an evolving macroeconomic landscape and shifting M&A dynamics. Below are key insights to help you stay ahead:
Macroeconomic Trends
Interest Rate Cuts Expected but Not Returning to 2010s
Levels – The Federal Reserve is expected to ease rates further, but borrowing costs will remain higher than the ultra-low levels of the past decade.
Inflation Stabilized, but Risks Remain – While inflation has largely hit central bank targets, market volatility persists, requiring businesses to stay vigilant in pricing and cost management
Services Sector Driving Economic Confidence – Growth is more pronounced in services than in manufacturing, potentially signaling stronger demand for service-based businesses.
Stable Credit Environment – Corporate bond distress remains low, suggesting credit availability remains relatively strong
Take Home Points
M&A CONDITIONS FAVOR WELLPOSITIONED SELLERS
DEBT FINANCING STILL ACCESSIBLE BUT MORE CONSERVATIVE
PRIVATE EQUITY CONTINUES TO BE A STRONG BUYER POOL
SECTOR FOCUS MATTERS
M&A and Investment Market Insights
Stable M&A Activity in North America and Europe – While dealmaking remains steady in these regions, stronger growth is occurring in emerging markets.
Private Equity AUM Growth Outpacing Other Asset Classes – Investors continue to favor private equity, with total AUM forecasted to reach $12 trillion
Private Market Fundraising Recovery Expected by 2027 – Venture capital and infrastructure investments are projected to lead this rebound.
Leverage Falling Across Industries – Buyout leverage ratios are declining, signaling more conservative financing strategies
More Capital Flowing into Private Markets –Institutional investors are allocating nearly 20% to alternative assets, primarily private equity.
Venture Capital & Private Debt
VC Market Faces Headwinds Despite AUM Growth – Venture capital fundraising remains ambitious, but deal activity and exits in North America and Europe remain sluggish.
Private Debt Returns at Decade-High Levels –Mezzanine debt leads performance, while distressed debt and direct lending are converging in terms of returns
Final Thoughts
2025 presents both challenges and opportunities. Business owners should focus on financial discipline, positioning for potential M&A opportunities, and exploring capital strategies that align with evolving investor preferences If you’re considering a transaction, now is the time to engage with advisors and explore strategic options.
MICHAEL ROTH MANAGING PARTNER
