MEMBER NOTES
MEMBER NOTES
2025 Outlook for Middle Market Mergers and Acquisitions
By Mike Simon Principal , The DAK Group
Mergers & Acquisitions ( M & A ) in the middle market has been strong and active in 2024 , following a relatively subdued 2023 . Since the middle market is primarily made up of privately held companies , the ebb and flow of M & A has always been fairly consistent , unlike M & A in large publicly traded businesses which see large swings in M & A activity .
With the Presidential Election behind us and a number of positive economic indicators , we see 2025 as a great time to buy or sell a business . The M & A business cycle is cyclical , driven by many factors , but lower interest rates and high stock market valuations are two key drivers that give us a positive tailwind going into 2025 .
Factors at play now : the possibility of high tariffs on imports and a strong U . S . dollar . The potential for high tariffs is already driving demand for U . S . production facilities . At DAK we were recently approached by an Indian company seeking to acquire a precision machining company based in the U . S . They need a U . S . production base to supply their customers currently supplied from India and want to be proactive before tariffs go into effect . A strong U . S . dollar gives Americans traveling abroad strong purchasing power , but it also makes U . S . company earnings more attractive to foreign investors .
With a new administration in Washington and the global pandemic behind us it is a good time to reflect on American exceptionalism , why our markets are the most vibrant in the world and why the American middle-market businesses remain a desirable place to invest for both domestic and international buyers .
DAK has been providing business owners with strategic advice for over 40 years . We ’ ve seen many business cycles and actively track business valuations . For some owners now may be the time they should invest in their company ’ s growth with acquisitions to broaden their reach or stay competitive . For others , in certain industries , their companies may be in high demand with the value near its peak , and now is the best opportunity to sell at a maximum value .
While interest rates and markets fluctuate , America has several things in our favor that set us apart from the rest of the world . I call these things “ factor endowments ” – key resources and characteristics that give the U . S . a comparative advantage and keep our businesses attractive to domestic and foreign investors . These advantages are :
1 . Largest Economy :
The U . S . boasts the largest GDP globally , with per capita income levels far exceeding those of most developed nations . At $ 76,000 per person , the U . S . outpaces countries like China , whose per capita GDP stands at just $ 12,500 . This economic strength is reflected in higher market valuations , robust corporate earnings , and a business-friendly environment free from excessive government intervention .
2 . Abundant Natural Resources :
America ’ s vast natural resource base supports a diverse range of industries . The U . S . is a leader in agricultural exports , mineral production , and energy output . With advancements in recovery technologies like fracking , the U . S . has become the world ’ s largest producer of crude oil and natural gas . This energy independence has allowed the country to maintain low energy costs , a stark contrast to nations like Germany , which has faced significant economic challenges due to energy disruptions .
3 . Skilled Workforce :
The U . S . workforce is one of the most educated and productive in the world . American workers generate an average annual economic output of $ 171,000 per person – far higher than in Europe , Japan , or other developed regions . Historically , immigration has been a key driver of this productivity , with the economy continuing to absorb new talent .
4 . Geography and Market Access :
Geographically , the U . S . benefits from its vast , integrated market . The North American continent , regulated by NAFTA , provides seamless trade access to over 500 million consumers . This combination of developed and developing markets ensures strong demand for goods and services .
5 . Financial Capital and Investment :
America ’ s stock market accounts for 61 % of global market capitalization , underscoring its dominance in financial markets . The U . S . offers unmatched ease of access to capital , whether through public markets or private equity . Contrast this with regions like Europe or China , where regulatory hurdles and restricted capital flows limit investment opportunities .
6 . Productivity and Output :
On a per-person basis , U . S . economic output is 40 – 60 % higher than that of other developed economies , including Western Europe ,
Mike Simon , Principal , The DAK Group , is reachable at msimon @ dakgroup . com .
Canada , and Japan . This productivity advantage has widened over the past three decades , supported by innovation , technology , and efficient capital deployment .
America is the leading economy in the world . America ’ s growth has been best-in-class for over a century , and our strengths today give us grounds for optimism about our country ’ s economic power and potential . Middle market businesses are ripe for both Buy Side M & A for owners to grow and Sell Side M & A for them to cash out , or a partial sale which provides other options . International businesses are clamoring to buy American companies , Private Equity has record amounts of “ dry powder ” cash ready to invest and strategic buyers are looking to expand their operations .
Private American businesses are in a good position relative to their counterparties abroad . Now is a great time to take advantage of the strong dollar and active M & A market . Business owners should take some time and learn what their options are . Often , owners are unaware that there are many M & A options available to them , not just buy or sell .
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