Small Business Exits: December closed deal data
Welcome to the December edition of Small Business Exits, the monthly publication featuring fully anonymized deal data from a selection…
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The 2024 presidential election sparked widespread speculation about its potential impact on the lower middle market M&A landscape. To gain more insight, we surveyed a selection of Axial buyside members (prior to Inauguration Day), addressing key topics, including business valuations, regulatory changes, and interest rate expectations.
This report summarizes the findings based on responses of ~50 Axial buyside members. While the responses offer valuable perspectives, it is not comprehensive and should be viewed as a snapshot of market sentiment rather than a definitive analysis.
Overall, will the results of the presidential election result in increased deal activity in 2025?
Regarding lower middle market M&A activity, what are the positives or negatives you believe will come out of this election?
| Election Results Pros & Cons |
|---|
| The re-election of President Trump signals better tax policy for buyers and sellers, which should help drive increased M&A activity. Mathew Burpee, Kepler Capital |
| Likely see M&A activity improve with higher quality businesses coming to market after more economic certainty and favorable short and medium-term growth prospects. Anonymous Independent Sponsor |
| Pros - Uncertainty is largely past, the new admin is more friendly to M&A, US manufacturing, development and consolidation. Cons - Rates could push higher as investment and stimulus brings back inflation. This could crimp sales multiples. Economy has pockets of softness. Matt Hultquist, Hillandale Advisors |
| I think there will broadly be a more bullish sentiment towards dealmaking, at least initially in 2025, but the proposed economic actions are so broad and unpredictable that I'm unsure of how long that euphoria will last. Dennis Huang, Polychrome |
| Positives: reduced industry regulations. Negatives: continued inflation and impact from tariffs Anonymous Family Office |
| Opportunities for businesses to get more support when creating jobs in the US, especially manufacturing jobs. Stephen Love, Revendar Equity Partners |
| We now have stability, but I do not think we have had better deal flow yet because there is a belief the economy is going to be back on track with a pro business leader in the top spot. Our firm believes there will be more activity in 2026, once owners have either improved their trailing 12 or figured out they are not going to be able to see a marked difference and decide to exit anyway. Jeffrey L. Koenig, Sigma Commercial |
Is now a better time for owners to evaluate an exit?
Why or Why Not?
| Yes |
|---|
| Yes, we should expect to see decreased bank regulations opening the door to increased leverage on transactions. Neal Doshi, Darshan Capital |
| The new administration's policies will provide more favorable tax treatment for business transitions. Levar Haffoney, Vedere Capital Group |
| Yes, earnings up and buyers all around = good outcomes for sellers. Matt Hultquist, Hillandale Advisors |
| Certainly better than before the election, as the uncertainty of Government control has been resolved. Mike Jemison, Hummock Capital |
| Yes, more buyers willing to pay premium valuation. Manuel Nuñez, Ascendis Capital |
| No |
|---|
| No. I think it depends on their line of business. Some of them may wait it out until the end this administration to capitalize on a better economy. Juan Lopez, Family Office |
| No. It's getting frothy. Valuations are getting ahead of the market and there are fewer deals. Christian Rodgers, Rodgers Holdings |
| No. A booming economy will make owners want to keep their business and let it grow. Kaden Hill, Elektroni LLC |
| Unsure |
|---|
| Maybe. President Trump has created a lot of optimism in the business community by signaling a desire to reduce regulations and red tape. That optimism may soon meet the reality of a very bureaucratic and polarized political system. Sellers may choose to take advantage of the current optimism while they can. Mathew Burpee, Kepler Capital |
| Maybe. Interest rates will likely need to remain high for longer due to inflationary pressure. Anonymous Independent Sponsor |
How do you anticipate business valuations will trend in 2025 compared to 2024 – higher, lower, or about the same?
What factors do you think will drive valuation trends?
| Factors Leading to higher Valuations |
|---|
| Lower rates, more investment in the US, and a more business friendly government. Anonymous Senior Lender |
| Lower interest rates. If rates keep going down, we assume buyers will be willing to pay more. Mike Jemison, Hummock Capital |
| Overall economic improvements that should help most if not all sectors; more consumer confidence will drive sales in many industries. Tom Clarke, Saturn Five Capital |
| Tax rates are a factor in buyers' valuation models. Lower expected future tax rates inherently drive higher valuations. Mathew Burpee, Kepler Capital |
| Factors that will keep valuations the same |
|---|
| Employee retention, sustained organic growth, and sound infrastructure (systems). Paul Adams, Columbia Home Services |
| Tax law, tariffs, deregulation, and unemployment numbers from government layoffs. Jeffrey L. Koenig, Sigma Commercial |
| Demographics. Aging population of owners and founders. Anonymous PE Buyer |
| More white collar layoffs = more demand to buy SMBs. Christian Rodgers, Rodgers Holdings |
Which factors do you believe will most impact 2025 M&A activity? (Check all that apply)
What is your expectation for 2025 interest rates compared to where they are now?
Will the potential price increases due to tariffs and/or supply disruptions impact how you value a business?
| Potential Tariff Implications |
|---|
| Yes, it already has. Businesses that import raw materials or work-in-process goods from Asia, particularly China, should expect a significant increase in input costs / COGS. It's unclear how much of that increase can be shared with consumers and retailers. Anonymous Family Office |
| Yes. It will take a while to determine how much tariffs will impact the cost structure of a given business. Anonymous Independent Sponsor |
| Really hard to say and is somewhat deal/company specific. Depends on geographic mix of revenue. Also, depends on the inputs into COGS (cost of goods sold) and the geographic mix of the supply chain. Mike Jemison, Hummock Capital |
| We stress test the cost of goods since we learned our lesson during the pandemic. Jeffrey L. Koenig, Sigma Commercial |
| Prices are always increasing and you need to ensure post acquisition that you pass them off to your customers. It's a cost of doing business not a reason not to buy a business. Paul Adams, Columbia Home Services |
| No. It depends on the types of tariffs, the levels imposed and most importantly whether the tariff rhetoric is used as a negotiating tactic rather than actual policy. Anonymous PE Buyer |
How will tax policies impact your acquisition strategy in 2025?
| New Tax Policy Implications |
|---|
| The new administration's policies will provide more favorable tax treatment for business transitions. We plan to include this in our pitch to business owners. Levar Haffoney, Vedere Capital Group |
| Tax policies directly impact how much cash founders get out of an acquisition, and will be very impactful on whether or not a founder considers a deal or not. Dennis Huang, Polychrome |
| We will no longer be looking at Canadian deals (bad tax policy expected until end of the year) and we will look more at US-only based deals (we expect good tax policy coming). Anonymous PE Buyer |
| We don't anticipate that tax policies will impact our investment strategy in 2025. Marek J. Olszewski, Catalus Capital |
| Probably help, but candidly, not a huge driver at the moment Anonymous Independent Sponsor |
| Any tax reform that reduces taxes not only on income but also gains and dividends will have a very positive impact on our acquisition strategy in 2025 and beyond. Anonymous PE Buyer |
| Decreased taxes allow us increased liquidity to do more deals. Kaden Hill, Elektroni LLC |
Will the potential for lower regulatory pressures increase lending and M&A activity in 2025?
Are there any other changes – positive or negative – that you feel will occur due to the potential regulatory changes?
| Potential Regulatory Change Implications |
|---|
| Energy independence, job creation, financial market flexibility, state and local autonomy are all positive changes. After 4 years of extreme government control, overbearing environmental regulations and almost tyrannical financial markets regulations, think the negatives will be negligible compared to the positives. Anonymous Family Office |
| Less regulation is always better for small business. We also look forward to more stable energy prices. Jeffrey L. Koenig, Sigma Commercial |
| I think the lack of consistency in regulatory changes will be negative. Companies need to understand the regulatory environment they're operating in to feel confident in making large decisions (e.g. acquisitions). Dennis Huang, Polychrome |
| Former regulators will serve as a pool of talent for businesses to hire from. Kaden Hill, Elektroni LLC |
| Long term, reduced regulatory oversight will result in more fraud and abuse in some cases, and more efficient markets in others. Marek J. Olszewski, Catalus Capital |
| We hear a lot of deals are going to HSR (The Hart-Scott-Rodino Act), which is one more hurdle and adds time to the deal process. Hopefully that is relaxed. Anonymous PE Buyer |
| Less attention to global warming could be detrimental for sustainable businesses. Juan Lopez, Family Office |
What sectors will likely be on the right side of change with the new administration? What about the wrong side of change?
| Right Side of Change | Wrong Side of Change |
|---|---|
| Improved tax benefits will be a net positive for tech, financial services, real estate, and professional services. | Tariffs, inflation, and labor costs will continue to negatively impact manufacturing, industrials, and transportation. |
| Automotive | Green Investments |
| Benefiting Sectors: Fossil fuels, financial services, construction, defense, and manufacturing. | Challenged Sectors: Renewable energy, healthcare, consumer protection, technology (small players), and global trade-reliant industries. |
| Oil & Energy | Public Sectors |
| Right side - US based auto parts manufacturing, US based semi-conductors, US owned precious metals, US based Oil and Gas. | Wrong side - Canadian auto, Canadian food, all Chinese imports (and related US based distributors). |
| Domestic Manufacturing | Overseas Manufacturing; Solar & Wind |
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