Corporate · April 22, 2025 · 7 min read
Midmarket M&A in 2025: signal, not noise
After two years of frozen pipelines, US midmarket deal volume is finally moving. We look at where the activity is, what it means for terms, and which sectors will define the rest of the year.
After two of the slowest years on record, midmarket M&A is moving again. The Q1 2025 figures are not blistering — but they are unmistakably above the trough. For founders and sponsors who have been waiting for a window, the question is no longer whether one is opening; it is whether the window in front of them is the right one.
What the numbers actually say
US midmarket transaction volume in Q1 2025 came in roughly 23% above Q1 2024 by deal count, and 31% above by aggregate value. That is a real recovery, not a statistical artifact: the Q4 2024 figures already showed a turn, and Q1 confirmed it.
But the recovery is uneven. Industrials, healthcare services, and B2B software are carrying most of the growth. Consumer-facing categories — DTC retail, restaurants, consumer SaaS — remain stuck. If you operate in the latter group, the macro signal is misleading; you are still in a narrower market than the headline implies.
Terms are loosening — selectively
The most interesting development is on the terms side. remain common, but the median earn-out tail has compressed from 24-36 months in 2023 to 18-24 months in early 2025. That is a meaningful change for sellers — and it tells you something about how confident buyers are starting to feel.
Reps and warranties
coverage is back, and so is the willingness of insurers to write at retentions below 0.5% of enterprise value. We saw 0.35% retention on a recent $400M transaction — a level unimaginable in late 2023. The cost of capital for these policies has come down by roughly 30% from the 2023 peak.
Where the activity is concentrating
Software with proven retention
B2B software with net revenue retention above 110% is trading at multiples not seen since 2022. The bar to clear is steep — you need not just NRR but durable gross margin and a disciplined cohort story — but if you clear it, the bidder count is real.
Healthcare services consolidation
Roll-ups in dermatology, ophthalmology, and outpatient surgical services continue at pace. The unit economics are well understood; the diligence focus has shifted almost entirely to clinical operations and HIPAA-grade data infrastructure. Reimbursement risk remains the single largest deal-killer in this segment.
Industrials and specialty manufacturing
Reshoring tailwinds — combined with the post-CHIPS-Act capital — are pushing strategic buyers to acquire capacity rather than build it. We have closed three transactions in the last six months where the strategic premium materially outbid the sponsor.
What this means if you are running a process
First: do not confuse a recovering market for an indiscriminate one. The buyers in this cycle are sophisticated, and the floors are rising faster than the ceilings. A seller who comes to market with a half-built data room is leaving 5-10 turns on the table.
Second: tax structure is back in scope. The 2024 elections produced enough policy uncertainty that buyers want optionality on treatment more often than they did in 2022. If you are selling, model the tax implications before LOI rather than after.
Third: closing certainty is now the dominant non-price term. Founders and sponsors who can offer it — clean financials, quiet workstream, no regulatory tail — are commanding meaningful premiums.
The window is real, but narrow
We do not think this is a 2021-style euphoria; the discipline in this market is too evident. But for the right targets — and the right processes — terms have not been this favorable since the second half of 2022. Whether the window stays open through year-end depends on a small number of macro variables we do not control.
If you are considering whether 2025 is your year, the analysis is best done now, not in September. By the time the window closes, the people who acted on it have already signed.