Economic growth expected to drive activity as valuations stabilize, inflation worries fade

Optimism about the dealmaking environment has reached a five-year high, according to Citizens’ 2025 M&A Outlook. The 14th annual survey of 400 leaders at U.S. middle-market companies and private equity firms revealed that 54% of decision-makers believe the current M&A environment is strong.

Economic growth and easing inflation are among the most-cited factors fueling middle-market businesses’ M&A plans in 2025. Fifty-seven percent of all respondents expect the U.S. economy to improve in the year ahead, up from just 47% last year, and 59% of middle-market companies believe that the economic growth backdrop will make business easier.

The bullish outlook for dealmaking is also supported by more upbeat expectations for valuations, particularly among PE firms and larger middle-market businesses. Nearly 90% of all respondents expect valuations to be stable or higher over the next year.

“The prevailing headwinds of recent years have really moderated,” said Jason Wallace, head of Citizens M&A Advisory. “We see companies and sponsors coming into 2025 with big plans and this year’s survey shows how focused they are on the growth environment.”

PE firms are especially bullish. Sixty-eight percent believe the current M&A environment is strong, an increase from just 52% last year. In addition, 64% expect deal flow to increase in 2025, particularly as more PE-backed assets come to market.

While dealmaking conditions vary across sectors, buyers and sellers are perceived to be on fairly equal footing overall, supporting confidence in the outlook. Notably, the seller pool has expanded substantially, with 73% of middle-market companies identifying as potential sellers in the year ahead, an increase from 63% last year.

Meanwhile, PE firms look ready to shop. Ninety percent of sponsors that anticipate an increase in deal flow in 2025 also expect to buy more than they did in 2024. This combination of willing middle-market sellers and eager PE acquirers could create a conducive environment for dealmaking, especially as small and mid-size businesses become increasingly comfortable with PE partners.

“Valuations have stabilized and buyers and sellers find themselves on fairly equal footing, which should reinforce confidence in dealmaking,” added Wallace. “The enthusiasm is palpable, and we are seeing a high level of M&A interest among both corporates and sponsors.”

Other key findings from the 2025 survey include:

  • Growing openness to partial sales. One factor supporting the growth of the seller pool in 2025 is an elevated interest in partial sales. In fact, among middle-market companies, the majority of would-be sellers say they are more open to a partial sale or ancillary business-unit sale, rather than a full exit.
  • Artificial intelligence could drive dealmaking. A recent Citizens survey shows that clear use cases for AI are emerging. As the technology continues to mature, the race to add AI capabilities could support dealmaking. In fact, among PE firms that anticipate an increase in deal flow this year, 38% cite a desire to add AI companies and capabilities to their portfolio as a key driver of activity, up from 25% last year.
  • Interest in international deals persists. Among middle-market companies, 52% of sellers and 46% of buyers say they would consider international deals. Notably, PE firms are even more bullish. Seventy-four percent say they are significantly more likely to consider investment opportunities outside the U.S. in 2025, up from 54% last year.

The survey was conducted among U.S.-based middle-market businesses ($25 million to $1 billion in revenue), as well as PE firms (fund size less than $1.5 billion) that are active in the acquisition and sale of U.S.-based companies with revenue between $50 million and $1 billion. Core business sectors included Citizens’ industry specialties of aerospace, defense and government services; business services; consumer; real estate, gaming, lodging and leisure; healthcare; industrials; technology, media and telecommunications; transportation and logistics; and financial services, as well as other industries.

Business executives at 274 middle-market firms and 126 PE firms who are directly involved in decision-making related to M&A (owners/partners, CEOs, presidents and other C-level executives and directors) completed a phone or web-based survey between October and November 2024.

For more information on this year’s Citizens Middle Market M&A Outlook, please visit our website here. To register for a Jan. 23 webinar on the report, please go here.

Citizens specializes in middle-market mergers and acquisitions. Citizens combines sector intelligence with a client-focused approach to realize our clients' true value. The Citizens team has more than 100 M&A professionals specializing in a range of industries across the United States. Citizens M&A Advisory is part of Citizens JMP Securities, LLC, a subsidiary of Citizens Financial Group (NYSE: CFG).

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $219.7 billion in assets as of September 30, 2024. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a full-service customer contact center and the convenience of approximately 3,100 ATMs and approximately 1,000 branches in 14 states and the District of Columbia. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com or visit us on X (formerly Twitter), LinkedIn or Facebook.

Frank Quaratiello frank.quaratiello@citizensbank.com 617.543.5810

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