Acquisition Financing Trends for 2025: Insights for Strategic Growth

Posted on: January 8th, 2025

acquisition-financing

Acquisition Financing increased in deal volume in the back half of 2024 and is poised to continue its market momentum in 2025. The US economy’s strong growth in 2023 and 2024 was a resounding counterpoint to the naysaying experts who predicted a recession due to inflation and interest rate hikes. The speed and force of the interest rate increases that started in 2022 caught many by surprise and threw a wrench into acquisition financing market planning in 2023 and most of 2024. Now that interest rates have peaked, and a more pro-business administration is taking office, businesses are back to thinking about acquisitions within the context of stable monetary and regulatory conditions. The return of a pro-business president has already had a very positive impact on small business optimism which drives business growth and acquisition financing enthusiasm. We see four major growth insights in the acquisition financing market as we move into the new year.

Key Trends Driving Acquisition Financing Momentum in 2025

Focus on US manufacturing and logistics businesses – despite so much manufacturing occurring abroad, there is a strong focus on reinvesting in manufacturing in the US. The supply chain stress coupled with increased geopolitical tensions have many companies focused on finding domestic suppliers. Buyers will place increased value on domestic manufacturing and transport assets, as they seek to capitalize on this emerging trend. This will lead to a higher level of acquisition financing in these sectors in 2025.
Focus on recurring service adjacent businesses – there is a valuation fever pitch in classic recurring service businesses be they SaaS, HVAC or everything in between. There are many recurring service adjacent businesses such as contractors who dabble but do not specialize in providing recurring service. These companies can be purchased at low prices and have significant hidden “recurring service real estate” value that execution-proficient buyers can capitalize on.
Market Prices will stay high so bring your equity – much as the whole world has inflated, so too have M&A prices. Gone are the days when you could finance your deal with 100% acquisition financing coupled with a seller note. If you are trying to do a deal in 2025 without putting in a significant chunk of the purchase price in equity, you are wasting your time.
Capital Market Availability – there is a bullish vibe shift occurring in the acquisition financing market. There is a record level of capital available to fund your deal. The question is not whether you can attract financing but who is the best provider of acquisition financing for your specific type of deal.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.