M&A activity in Q1 2025 offered a mixed portrait of a middle market landscape in transition. The quarter began with a rebound in deal volume, fueled by optimistic expectations around economic growth and a release of pent-up demand. However, this early momentum was tempered by renewed uncertainty in the back half of the quarter, particularly around inflationary pressures and shifting trade policy. While quarter-over-quarter comparisons highlight a recovery from the soft close to 2024, year-over-year figures show a modest contraction in both deal volume and value, underscoring the fragility of market sentiment in a volatile macroeconomic environment.

Certain segments of the market displayed notable resilience. Insurance and RIA dealmaking continued to gain momentum, driven by consolidation, steady cash flow profiles, and strong interest from private equity sponsors. Similarly, the lower middle market stood out as a pocket of relative strength, benefiting from heightened selectivity and limited reliance on leverage. Valuation multiples in this segment returned to pre-pandemic levels, supported by demand for high-quality assets in defensive sectors like healthcare and IT. Private equity activity in the middle market also remained robust, with a clear shift toward capital-efficient strategies such as add-ons and growth equity. As the year unfolds, the trajectory of M&A will hinge on the resolution of policy uncertainty and the stability of credit markets—factors that will ultimately determine whether Q1’s momentum can be sustained throughout the rest of 2025.