Authors: Eric Denlinger, Managing Director & Alex Brickman, Director
After three years defined by volatility, hesitation, and valuation resets, 2025 delivered something the M&A market hasn’t seen in a long time – clarity. Buyers regained conviction, founders regained optionality, and the market learned how to operate confidently in a “higher for longer” world.
Across software, automotive retail tech, business services, and industrials, one message echoed everywhere: “We finally know what the next twelve months will look like.” And that predictability — more than rates, capital, or valuations — pulled dealmaking forward.
Monetary Policy Stabilized and Mobilized Dealmakers
The Federal Reserve didn’t cut rates aggressively in 2025, but they delivered something arguably more important: predictability. Inflation cooled steadily, forward guidance became consistent, and the cost of capital settled into a range dealmakers could model without rewriting monthly assumptions.
That stability showed up quickly in the uptick of high-quality founders in market and in numbers. Compared to 2024, deal volume increased an estimated 8–12%, the first meaningful rebound in two years.
Total deal value rose approximately 15–20%, driven by renewed strategic buyer activity and a stronger large-cap deal environment. Additionally, process completion rates improved, with fewer failed LOIs and stalled processes.
With inflation continuing to cool and the Fed policy potentially stabilizing, dealmakers are entering the new year with cautious optimism. In 2026, even modest easing could result in lower costs, stronger exits and IPOs, and renewed strategic moves.
Generative AI Redefined Competitive Advantage in Vertical Software
If 2023 and 2024 were the years of experimentation, 2025 was the year of separation. Vertical software companies were evaluated on whether they were architected for AI with proprietary data, clean foundations, workflow debt, automation readiness, measurable margin gains and minimal implementation friction.
AI became an economic moat. Platforms with data scale and workflow gravity saw multiples hold firm or expand, while mid-tier software lacking AI pathways faced shrinking buyer interest. Strategic buyers targeted acquisitions that accelerated their AI strategies, and sponsors prioritized assets where AI could materially improve unit economics.
PE AUM Hit Record Levels — and LPs Demanded Liquidity
Private equity entered 2025 with unprecedented AUM and pressure. After two years of slow exits, LPs wanted DPI, not theoretical mark-ups. That pressure reshaped sponsor behavior with faster exits, more sponsor-to-strategic sales, a resurgence of minority recaps, record continuation vehicle usage, and a return of dividend recaps.
The best-performing firms of 2025 prioritized consistent liquidity. Private equity didn’t need help deploying capital; it needed help recycling it.
Automotive Software Giants Moved With Steady Intent
Strategic acquirers in several categories, including DMS, fleet management, and digital retailing, didn’t chase splashy acquisitions this year. They practiced precision consolidation — small- to mid-sized deals that filled capability gaps, strengthened data layers, and positioned their ecosystems for an AI-driven decade.
The shift in attention to integration, data and workflow alignment and AI capability was unmistakable.
A slower M&A market reflected preparation rather than hesitation. When consolidation inevitably reaccelerates, platforms that deliberately invested in 2025 will be positioned to move the fastest.
Tariffs Became More Predictable — Especially in Automotive
Tariff stability had an outsized impact in 2025. EV guidance firmed up, battery sourcing rules settled, escalation fears faded, North American supply chain flows normalized, and OEM investment planning resumed with multi-year clarity.
Inventory predictability improved ordering and pricing, while thawed OEM capital budgets fortified investments in automation, digital infrastructure, and AI-driven solutions.
When tariffs stabilize, supply chains stabilize, which influences forecasting – the bedrock of automative M&A.
Unlike 2021, capital conditions didn't inflate valuations but rather made rational decision-making possible.
Corporate Carveouts Became One of the Year’s Biggest Deal Engines
The year produced the strongest carveout environment in over a decade. Corporations streamlined portfolios, shedding non-core businesses that didn’t fit long-term AI or automation strategies. Buyers favored carveouts for their durable revenue, strong customer bases, clear operational improvement levers, underinvested tech stacks, and immediate strategic fit.
Strategics used carveouts to strengthen ecosystems, and sponsors used them to build platforms. Carveouts weren’t just another deal category — they became a defining source of high-quality deal flow.
Capital Markets Turned Constructive
Capital markets gained momentum as an accelerated IPO window, aggressive competition among private credit and banks, cross-border capital flows and strategic buyer behavior cultivate a robust environment.
Quality Assets Thrived — Everything Else Lagged
While mid-term assets lagged, high-quality assets with strong retention and growth, clean data, workflow depth, and AI leverage saw more bidders, faster processes, premium pricing and financing terms, and strategic interest returns.
2025 restored something the market had lost – confidence. If 2025 was the reset, 2026 may be the lift — not because the market will explode, but because uncertainty finally gave way to clarity. The next twelve months will not reflect recovery, but instead momentum.
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