After a strong finish to 2024 and an optimistic start to 2025 in the deal market, U.S. merger and acquisition activity has cooled noticeably. Through the first nine months of 2025, total deal volume is down roughly 10% year-over-year, with nearly every sector feeling the slowdown.

But the story isn’t one of collapse — it’s one of uncertainty.

The Big Picture

Business owners, investors, and lenders alike have spent most of 2025 navigating a confusing mix of signals:

  • The economy is still growing — just at a slower pace
  • Interest rates are still high — but may start easing soon
  • Inflation decelerated, only to flare up again
  • Trade policies and tariffs remain fluid — but clarity is coming
  • Consumers kept spending even as they amassed record debt
  • Historically low unemployment coexisted with signs of a cooling job market

That “wait-and-see” mindset has led many would-be sellers to delay taking their companies to market and many buyers to pause until they can model what’s next with more confidence.

The result? A quieter market that’s building pressure beneath the surface.

The Numbers Behind the Slowdown

Our analysis of U.S. deal activity shows:

  • Overall M&A volume is down about 10% from 2024 and 9% from 2023. And 2024 and 2023 were subdued comparisons relative to pre-COVID periods. 
  • The Technology Services sector is the rare bright spot, up about 12% year-over-year, thanks to strong demand for cybersecurity, cloud, and AI-driven services.
  • Nearly all other sectors — especially distribution, health services, retail, and consumer products — have seen double-digit declines.

This isn’t about a weak economy. It’s about uncertainty — and the ripple effects it creates for buyers, sellers, and lenders.

What’s Driving the Hesitation

1. Global Trade and Policy Uncertainty

Trade policy remains one of the biggest wildcards affecting business confidence — and by extension, M&A activity.

  • The U.S. still imports more than 9% of its total goods from China, representing over $430 billion annually. While that share has declined from over 20% a few years ago, China remains a critical supplier across technology, consumer, and manufacturing categories.  A trade deal has yet to be reached with China, but all hopes and indications are that both sides will reach a broad resolution that will hopefully ‘stick’ in the coming weeks. 
  • Meanwhile, the U.S. and India are reportedly nearing a comprehensive trade agreement, with legal drafting underway. The U.S. imported about $91 billion in goods from India in 2024 — roughly 2.0% of total imports — and India’s share is steadily rising in higher-value manufacturing and technology products.

If these trade agreements reach resolution, the resulting stability in supply chains, tariffs, and input costs would give dealmakers something they haven’t had in a while: visibility. That clarity enables more reliable pro forma modeling — and more confident deal execution.

2. High Borrowing Costs

Even with expected Federal Reserve rate cuts on the horizon, financing a leveraged transaction remains far more expensive than it was just a few years ago. That means buyers are forced to use more equity to finance deals, making it harder to reach return thresholds — especially in the lower middle market.

3. Tighter Credit Conditions

Banks and private credit funds are still lending, but with tighter structures, higher spreads, and more caution. Deals are still getting financed, but the underwriting bar is higher, and timelines are longer.

4. Valuation Gaps

Sellers still remember the strong multiples of 2021–22. Buyers, however, are pricing for today’s higher cost of capital and lower growth forecasts. That mismatch continues to delay many processes, though creative structures — like earnouts or seller notes — are helping bridge the divide. 

What Could Break the Logjam

While the challenges currently restraining mergers and acquisitions are significant, they are expected to be temporary in nature. Several factors could bring the market back to life in 2026:

  1. Trade clarity — The conclusion of U.S. negotiations with China, India, and Mexico could stabilize costs and restore supply chain predictability.
  2. Interest rate direction — Expected Fed rate cuts would immediately improve deal financing math.
  3. Credit normalization — As lenders gain comfort, middle-market financing should become more fluid again.
  4. Private capital pressure — Family offices and private equity firms continue to hold significant “dry powder” that must be deployed.

When those pieces align, activity could rebound quickly — and valuations could move up with them.

Why Sellers Should Prepare Now

The best time to sell is right before the market wakes up.

If you wait until everyone else is ready, your deal risks getting lost in the noise.

By starting now — engaging an M&A advisor, preparing offering materials, establishing a data room, and refining your company’s growth narrative — you’ll be positioned to launch early in 2026, when buyers re-engage in force.

Buyers are hungry for dealflow. Capital is still available. What’s missing is clarity — and that’s beginning to change.

Our Take

2025’s slowdown isn’t about weakness — it’s about fog.  As trade deals finalize, rates normalize, and credit steadies, that fog will lift. When it does, which we expect in the near term, both buyers and sellers who have been waiting on the sidelines will rush back in.

For business owners, that means now is the right time to get ready. When the window opens — and it will — the prepared will be the first to capture it.

Dean Dorton M&A Advisory guides business owners and investors through all aspects of M&A transactions, including market preparation, negotiations, deal execution, timing, valuation, and transaction readiness.  If you’re considering a sale or recapitalization, our team can help you prepare and position your company for the next wave of opportunity.