Dealmakers we talked to for this year’s state of M&A article range in their characterization of today’s deal market, but few have the optimism that radiated from most only a few years ago. That attitude can be attributed largely to higher interest rates.
“Today’s M&A environment is moribund,” says Jordan B. Hansell, CEO and founder of Tradepost. “Higher interest rates have made buying more expensive and have, therefore, dampened interest and values. Deals are still getting done, but everything has cooled significantly.”
Ice Miller Partner Robert Ouellette sees a market that is little less robust than past years.
“Activity is more industry and niche specific,” Ouellette says. “There are plenty of deals getting done but not across all industries and all sizes of companies as in some past years.”
According to PwC’s 2024 Mid-Year Outlook, Global M&A Industry Trends, published in late June, the value of M&A deals in the first half of 2024 rose by 5 percent compared to the first half of 2023, but overall transaction volume fell by 25 percent, continuing a downward trend that started in 2022. In this year’s first half, deal volumes were just over 23,000 and deal values reached $1.3 trillion. For comparison, PwC stacks that next to the record levels of activity in the second half of 2021, which saw almost 34,000 deals and deal values of $2.7 trillion.
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Mark-Fleming-150x150.jpg)
For Mark Fleming Jr., managing partner at MEMM Capital Ltd., the pace of deals in today’s environment has slowed primarily because of the higher interest rate, but there can be movement for those in the right position.
“In the industries that I know best — real estate, insurance, financial services — deals have slowed a bit,” he says. “But this has also created opportunities on the buy side for patient buyers with cash to spare.”
But for at least one dealmaker, there’s reason for optimism. Kensington Hill Partners CEO Jeffrey Sopp says despite higher interest rates and uncertainty in the broader markets, strategic buyers and firms are constantly looking for and evaluating new opportunities.
“This is a perfect opportunity — firms looking for capital or M&A should be in the market talking to and exposing their firms to others.”
Several area dealmakers offered their take on the current market, sharing their perspective on how buyers, sellers, entrepreneurs and investors are faring. Here’s what they have to say.
Rates aside …
Chief among these dealmakers’ broader macroeconomic concerns — and likely no surprise to readers — is interest rates. But there are a host of other challenges. One recurring theme among them is the upcoming election.
“Clearly the election and the impact to economic policy is probably the biggest factor right now,” Fleming says. “Markets have recently already begun to price in a second term under (Donald) Trump, and the expected lower interest rates and looser regulatory environment expected to come along with that second term. Personally, the potential for additional inflation from tariffs on imports concerns me and could impact things, too.”
Sopp says some industry sectors are evaluating the effects of artificial intelligence (AI) at a local level, while some private equity firms are delving deeper into the longer-lasting potential effects of AI. Additionally, he says energy M&A on a more local or regional level will be watched closely as the state, local and national elections take place.
Ouellette notes that he is very concerned about how the Japanese banking system may drag down the global economy.
“We’re seeing signs of that already,” Ouellette says.
Narrow options
Looking at the market from the seller perspective, Fleming sees a great environment for sellers if they have a strong business that is recession-resistant and has shown years of consistent profit.
“It’s a lot more challenging for businesses that are more cyclical or prone to disruption from AI or regulatory changes right now,” Fleming says. “Sellers focused on building enduring businesses are positioned well regardless of the environment.”
Sopp says sellers are seeing more real and strategic potential buyers due to the focus and fewer opportunities out there.
“This provides a shorter sell cycle and higher prices once the strategic buyer is identified,” he says.
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Jordan-Hansell-150x150.jpg)
CEO and founder, Tradepost
However, activity and pricing are both down for sellers, according to Hansell, as a result of the interest rate environment.
“This has made selling businesses at attractive valuations difficult,” Hansell says. “Sellers need to be on top of their games — clean financials, demonstrable growth trajectories, etc. — to command top pricing.”
Further, he says sellers are struggling to find buyers as borrowing has become more expensive.
“For instance, private equity exits have slowed considerably as their buyers sit on the sidelines and funds are reluctant to reduce pricing in a material way,” he says.
Because higher interest rates impact debt and the ability of buyers to finance transactions, Fleming says the higher rates can cause a major impact to cash flow for a buyer after debt servicing and can cause deals to lose their appeal if the buyer was planning to use heavy debt to purchase.
Sellers are also facing a very disruptive technology environment with the way AI is continuing to change so much. This, he says, gives some buyers pause in businesses that they see going away or at least being impacted in the future.
Ouellette finds sellers are really struggling with developing and retaining leadership, which is contributing to their M&A woes.
“Talented managers are at a premium, and buyers want to know the strength of the next generation of target company leaders,” Ouellette says. “Oftentimes, they don’t exist. That hurts sellers in terms of maximizing value.”
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Jeff-Sopp-1-150x150.jpg)
CEO, Kensington Hill Partners
Similarly, Sopp says in this environment, business owners and boards need to ensure they are speaking with the correct decision makers, not just the business development folks looking for deals.
“Sellers may not have the experience to separate the two and spend wasted cycles and time speaking with the wrong people,” Sopp says.
Properly vetted, he says deals can consummate and happen fast.
“Sellers are much more prepared for buyers’ deep and sophisticated questions and diligence,” Sopp says. “Technology has helped a great deal.”
Capital crunch
According to Fleming, buyers with patient capital and cash are in a great position right now.
“They can be selective because they are earning a pretty strong return in the capital they don’t deploy, too, so there is less pressure to deploy capital in riskier deals,” he says.
He says buyers are also facing a landscape that has become far more competitive in the past two to three years, especially in the lower middle market. More competition combined with sellers that often have an inflated value in mind for their company makes generating deal flow a challenge.
Buyers in the right circumstances may find that sellers have become more realistic about valuations, according to Hansell. However, he adds that buyers are having difficulty finding affordable debt to finance purchases.
Still, according to Ouellette, the credit markets are open and looking for business.
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Rob-Ouellette-150x150.jpg)
partner, Ice Miller
“Buyers may not like the interest rates, but credit is available and lenders will vigorously pursue new opportunities,” he says.
Ouellette, however, does allow that much of buyers’ issues come back to interest rates.
“With higher interest rates, every deal requires a bigger equity check, which brings down expected returns,” Ouellette says. “Ultimately, they need to produce a certain level of returns to satisfy their limited partners and to raise their next fund.”
Sopp sees staffing as an ongoing issue that’s even affecting buyers.
“Some buyers and investors are having trouble attracting and retaining seasoned staff to evaluate and do proper diligence on companies,” Sopp says.
Early stage looking up
Looking at the early stages, Cindi Englefield, co-founder and chief investor relationship officer at Accelerating Angels says the opportunity to start a company in Ohio and the U.S. has never been easier … or harder.
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Cindi-Englefield-150x150.jpg)
co-founder
and chief investor relationship officer, Accelerating Angels
“The opportunity is there but it’s not easy,” Englefield says. “There is so much help available for new entrepreneurs to get business support from accelerators, mentors and advisers. But, getting the capital for the growth of a new company is not easy right now.”
For entrepreneurs, she says the startup opportunities are better now as many universities are including entrepreneurship in their curriculum and startup labs and accelerators seemingly multiplying in the Midwest.
“The support has never been better for a new business owner to get started,” Englefield says.
Wolf Starr, CEO of Atlas Partners, says the changes in the market have offered both opportunities and challenges for those operating at the early stages.
![](https://sbnonline.com/wp-content/uploads/2024/09/col_cs_Wolf-Starr-150x150.jpg)
CEO, Atlas Partners
“The state of entrepreneurship today is stronger than ever but with so many new competing complications that have not yet been fully tried or tested,” he says. “A successful exit can also be viewed in many different forms as investors are being creative with projects and productions.”
Starr says tech advancements have meant entrepreneurs can learn to prioritize their skills and delegate both with partners and AI to focus on their expertise and networks. However, he says it’s increasingly hard to cut through the clutter with new tools and systems that can produce a nearly perfect pitch in seconds regardless of dedication or relevance.
Englefield says the economy has slowed things down for IPOs, VC funding has tightened, there’s less private equity activity and interest rates have climbed, all of which have made it hard to raise capital for growth. But she says she’s hopeful that after the presidential election is over, things will adjust and get much easier.
“The higher cost of capital, higher inflation, and higher costs for materials and labor all had an economic impact across the U.S.,” Englefield says. “And, here at home in Ohio, I watched the startups struggle as everyone pulled back on funding while they waited to see what happened next. I believe we are coming back out of that mindset and I am hopeful things will get better very soon.”
Investors, according to Starr, are seeing more great opportunities than ever before, and are finding very creative solutions for the next generation.
Englefield agrees.
“I see great companies applying for funding with innovative ideas and solutions to some of the big problems in the world today,” Englefield says. “The changes that the popularity of AI has created for businesses has been fun to watch and explore.”
However, Starr says while investors are seeing more great opportunities than ever before, it is hard to break through the noise.
Fast forward
Looking to the end of the year, Englefield says she believes entrepreneurs and investors will stay on the same course through the end of the year.
“When the presidential election is over and the transition is complete, I believe the market will stabilize, adjust and get moving again,” she says. “I am hopeful.”
Sopp says in the M&A market, much of how the year finishes will hinge on the election results as well as sector compression in fast-growing industries and markets.
Hansell says the year will finish down a bit.
“That being said, should the Federal Reserve lower rates in September as anticipated, 2025 may be more active,” he adds.
Fleming expects a steady year, but a number of deals could take a bit longer as buyers look toward 2025 and the potential for lower rates.
For Ouellette, he thinks the last quarter will be very strong.
“With the pipeline we have now, and the performance of most middle-market companies remaining strong, there will be another year-end crush of transactions closing,” he says.