Q2 is in the rearview mirror—where has the time gone?
Class VI has certainly stayed busy! As we take stock of 2025’s whirlwind first half, I thought I’d share what we’re hearing from buyers and sellers in the M&A middle market about their plans, questions, and concerns.
In short, mid-market M&A is in something of a holding pattern, with no unambiguous signs that macroeconomic uncertainty will abate, although we are seeing signals that deal activity has started to pick up steam after a notably quiet spring and early summer.
The T word
The smart money is on at least one of the major dictionaries designating “tariff” as their word of the year come December.
In the M&A community, tariff talk started shortly after November’s election. But few analysts were prepared for April 2, when the White House announced a massive expansion of the levy program. Dealmakers immediately started slowing their activity, spooked by the prospect of import duties tanking the profits of target businesses.
We’re still dealing with the fallout from Liberation Day at midyear, even though many of the tariffs have been walked back (possibly temporarily). In fact, the reversals are part of the problem for M&A: no one can say what policies or challenges businesses will face in a few months, much less a few years—and investors don’t like uncertainty.
The tone of analysis has shifted from “Do this now to mitigate a particular tariff” to “Do these things to stay afloat through the unpredictability.” Class VI has even engaged in a bit of this.
More on this topic certainly to come, but for now, the T word comes paired with a U word that isn’t going away: uncertainty.
Slow to exit
We’ve been hearing this for years now: private equity firms hope to exit aging assets soon and realize some liquidity for themselves and antsy limited partners.
But it’s still not happening regularly. In fact, PE exits fell in Q2 thanks to trade policy concerns, with the middle market among the least active segments. Firms are worried about making subpar deals if they sell in this environment.
But remember those antsy LPs? We hear that many of them are starting to exert pressure to move toward liquidity events, which might be enough to make some PE groups exit before they’d prefer.
We may also see an increase in creative liquidity vehicles like so-called “CV-squared” options, which are continuation funds on continuation funds, designed to help LPs cash out of aging assets.
What deals are getting done?
M&A isn’t at a total standstill. But here’s something else that hasn’t changed since last year’s midyear report: the highest quality deals are making it across the finish line, but those deemed riskier are moving slowly or stalling out.
What constitutes a high-quality deal? Naturally, there’s always appetite for a buttoned-up, de-risked business in any industry. Strong financials and smooth operations are also a plus.
Excess customer concentration, uneven financial performance, customer retention problems, and concerns about market size are some common risks that slow deals and lower valuations.
These days, buyers are also shifting their dollars toward asset-light companies like SaaS, cybersecurity, and financial or professional services firms, which are relatively insulated from tariffs and can scale without adding much physical infrastructure. What’s more, the AI race is bringing big investments to SaaS and tech more broadly, which includes larger firms lapping up innovative start-ups.
We’ve seen movement on deals in the dental, behavioral health, and physical therapy spaces—mission-critical services like healthcare are necessary in any economy.
We tend to see fewer deals for consumer products or construction firms when the ground is liable to shift. But it’s possible the recently enacted One Big Beautiful Bill Act (OBBBA) could spark some interest in manufacturing or construction deals. Specifically, loosening rules around equipment and property expensing could improve cash flow for these companies.
Here we go again
What’s to come in the second half of the year? Possibly more of the same.
The tariff situation isn’t sorted, but investors and sellers alike seem to be adapting to what may be a new normal in terms of trade environments. Analysts are still parsing the implications of the OBBBA, but there seems to be some positive sentiment regarding a few of its tax-rule provisions.
Here’s what we’ll be watching for as 2H unfolds:
- A settled tariff regime. Maybe this won’t happen and we’ll get more will-they-won’t-they. But as much as we advise clients to focus on strengthening their fundamentals in this environment, we still need to keep an eye on what’s actually implemented.
- PE exit activity. Exits and liquidity, or stasis and continuation funds?
- Deals in manufacturing and other asset- and import-heavy spaces. Will investor reaction to the OBBB counteract any tariff-related hesitation? We’re seeing a bit more momentum here than in the spring and early summer, though we expect more deal structures that protect buyers (e.g., more enterprise value tied to earnouts or escrows).
Time will tell—and when it does, we’ll tell you!
AUTHORED BY:
Bobby Motch
Head of Sponsor Coverage | Class VI Securities, LLC
As head of Sponsor Coverage, Bobby is responsible for managing financial and strategic sponsor engagement, developing sponsor-related content, and managing Class VI’s Buyer CoPilot program. Prior to his role as Head of Sponsor Coverage, Bobby was responsible for executing and closing transactions and supporting Class VI clients through financial analysis, modeling, market outreach, industry research, and valuations.