Private Equity’s Growing Influence on Mid-Sized M&A Deals in 2025
February 3, 2025
In recent years, private equity (PE) has become a significant player in the mergers and acquisitions (M&A) market, especially for mid-sized companies. As we look ahead to 2025, PE is expected to continue shaping the M&A landscape, with increasing investments in mid-sized businesses across various industries.
For mid-sized businesses, understanding how private equity can influence M&A deals and how to position themselves for successful PE-backed transactions is crucial for navigating an increasingly competitive market. Ready to get to grips with it all?
Attractive Valuations: Mid-sized companies often present attractive opportunities for private equity firms. Compared to larger corporations, these businesses tend to have more reasonable valuations, with a higher potential for growth and increased profitability after strategic investments and operational changes.
Market Fragmentation: Many industries are becoming more fragmented, with smaller players looking to consolidate. PE firms recognize that mid-sized companies in fragmented sectors are ripe for acquisition, leading to increased deal flow.
Operational Improvements: Private equity firms are not just financial investors; they bring operational expertise to the table, helping mid-sized companies scale, streamline operations, and improve performance. This ability to add value makes mid-sized companies even more appealing to PE investors.
In 2025, as the economic landscape continues to evolve, private equity will likely play an even more prominent role in shaping mid-sized M&A deals. Understanding how to navigate this dynamic and position your company for success with a PE partner will be crucial.
How Private Equity Firms Add Value in M&A
Private equity firms do more than just provide capital; they actively work to grow and improve the companies they invest in. For mid-sized businesses, this means that a PE-backed transaction can lead to greater strategic direction, operational efficiency, and access to new markets and/or technologies.
Key Ways PE Firms Add Value
Strategic Guidance: PE firms often have extensive experience in managing and growing businesses, especially in specific industries. Their expertise can be invaluable in formulating long-term strategies for growth, market expansion, and competitive positioning.
Operational Efficiency: One of the key areas where PE firms excel is improving operational efficiencies. This includes streamlining processes, reducing costs, and optimizing supply chains. By implementing these changes, PE-backed companies can achieve better profitability and scalability.
Access to Networks: Private equity firms bring a wealth of industry connections, including potential clients, partners, and suppliers. This can open up new business development opportunities and provide access to resources that may have been previously unavailable to mid-sized companies.
Capital for Growth: PE firms often provide the necessary capital for organic growth or additional acquisitions, which can be crucial for mid-sized businesses looking to expand quickly and/or enter new markets.
How to Prepare for Private Equity Investment
For mid-sized companies looking to attract private equity investment, positioning your business correctly is essential. Understanding what private equity firms are looking for in a target company can help ensure that you’re well-prepared to secure a deal that benefits both parties.
Actionable Tip
Focus on Scalability: PE firms are primarily interested in businesses that have the potential to grow. Ensure your company has a clear growth strategy, whether it’s expanding into new markets, developing new products, or increasing market share. A scalable business model will make your company more attractive to potential PE investors.
Strengthen Management and Governance: PE firms often look for strong leadership teams in the companies they acquire. Ensure that your management team is experienced, capable, and aligned with the company’s long-term goals. Implementing solid governance structures can also provide confidence to potential PE investors.
Demonstrate Operational Efficiency: Private equity investors seek businesses with strong operational performance. Review your operations and identify areas for improvement. Streamlining processes, reducing waste, and improving profitability will make your company more appealing to PE investors.
Diversify Revenue Streams: PE investors tend to favor businesses with multiple revenue streams, as this reduces risk and increases the likelihood of long-term growth. If your business is overly reliant on one product, service, or market, consider diversifying to mitigate risk and enhance your appeal to private equity firms.
Prepare for a Rigorous Due Diligence Process: PE firms conduct thorough due diligence before making an investment. Ensure that your financial records, legal documents, and operational data are organized and transparent. Address any potential red flags ahead of time to avoid delays or complications in the deal.
Increased Focus on ESG: Environmental, social, and governance (ESG) factors are becoming increasingly important for private equity firms. In 2025, PE investors will likely give more weight to companies with strong ESG practices, as sustainability becomes a central focus for both investors and consumers. Mid-sized businesses that integrate ESG into their operations will have a competitive advantage in attracting PE investment.
Interest in Technology and Innovation: With technological advancements rapidly reshaping industries, private equity firms are expected to continue seeking out mid-sized companies that have innovative products, services, or technologies. Companies that embrace digital transformation and stay ahead of technological trends will be more attractive to PE investors looking for high-growth potential.
More Cross-Border Deals: As global markets continue to recover and expand, private equity firms may increasingly look beyond domestic borders for M&A opportunities. Mid-sized businesses with international growth potential or those located in emerging markets could see more interest from global PE firms.
Sector-Specific Deals: PE firms are likely to increase their focus on specific sectors with high growth potential, such as healthcare, technology, and renewable energy. Mid-sized companies operating in or around these industries should be prepared for increased competition from private equity investors looking to capitalize on sector-specific growth.
Positioning Your Company for Success with Private Equity
Ultimately, private equity’s influence on mid-sized M&A deals in 2025 is expected to grow significantly, providing both challenges and opportunities for businesses looking to expand, innovate, or exit. By understanding how private equity firms add value to the businesses they acquire and positioning your company to meet their investment criteria, you can attract the right PE partner and secure a successful deal.
With 30-plus years of experience in the mid-sized mergers and acquisitions market, Woodbridge – A Mariner Company has an established network of buyers with plenty of dry powder in their arsenals. Book an obligation-free appointment with one of our M&A experts today.
