The mergers and acquisitions (M&A) market is a complex ecosystem sensitive to myriad economic forces. In Q2 2025, businesses navigating the M&A landscape face a unique set of challenges and opportunities. To better understand these dynamics, we spoke with Sara Burden, Principal at Walden M&A in Atlanta, who provided valuable insights into the economic factors influencing M&A today.
Key Economic Factors Influencing M&A Deals
Burden notes while buyers and sellers may have slightly different perspectives, several core economic concerns resonate across the board: interest rates, tariffs, and political history emerge as the most common factors influencing M&A transactions.
Interest Rates and the Price of Money
Interest rates are a fundamental economic lever exerting considerable influence on M&A transactions. Burden emphasizes their importance by explaining how they directly affect the “price of money” for buyers seeking to finance acquisitions. In simpler terms, the prevailing interest rates determine how much it costs a buyer to borrow the funds necessary to complete a deal.
Burden highlights this impact is felt acutely by buyers when they enter the marketplace to secure “purchase monies.” Higher interest rates translate to more expensive financing, which can significantly alter the financial dynamics of a potential acquisition.
The implications of interest rates extend to sellers as well. Burden points out that sellers must be aware of how interest rates can influence deal valuations.
“If it costs the buyer more money to get the deal done, the seller may not receive the value they thought they were going to get a year ago,” she explains. This means sellers who may have anticipated a certain sale price in a lower-interest-rate environment might need to adjust their expectations when interest rates rise.
In essence, interest rates act as a key factor in the negotiation between buyers and sellers. For buyers, higher interest rates can increase the overall cost of the acquisition, potentially leading them to offer a lower purchase price or to seek more favorable deal terms.
Sellers, on the other hand, face the reality of higher interest rates which can compress valuations and impact their returns.
Tariffs and Offshore Sourcing
Tariffs have emerged as a prominent economic factor influencing M&A transactions, particularly for businesses with intricate supply chains. Burden emphasizes the widespread concern surrounding tariffs and their potential ripple effect across various industries.
She highlights how tariffs can directly impact businesses by “pulling products from offshore sources,” creating a chain reaction, ultimately affecting consumer prices. For many of Walden M&A’s clients, especially those in manufacturing or distribution, tariffs necessitate adjustments in pricing strategies. These businesses are faced with the challenge of passing on increased costs to their client base and, ultimately, the end user.
Burden uses a relatable analogy to illustrate this economic reality, comparing it to the fluctuating prices of everyday goods.
“It’s kind of like when we go to the grocery store, and we keep seeing the price of eggs going up. It’s a reality. And if you want those eggs, you just pay the price. And I think this is what we’re seeing out in the buying and selling community as well.” This analogy underscores the unavoidable nature of increased costs and how businesses and consumers alike must adapt.
Tariff Mitigation Strategies
In response to these tariff-related challenges, businesses are exploring strategies to mitigate their impact. One key strategy is to shift away from relying heavily on offshore sourcing. Burden notes many clients have already “leveraged themselves by shifting from importing product to buying it domestically,” which she views as a positive development. This shift not only reduces exposure to tariffs but also stimulates domestic business opportunities.
Walden President John Phillips echoed this sentiment, sharing, “Manufacturers who are not dependent upon importing may not be impacted by tariffs, but their industry or their respective sector might actually be favorably impacted by tariffs,” he said. In some cases, tariffs could create opportunities for domestic manufacturers by increasing demand for their products. “So they’re not feeling a financial impact from it, but anticipate higher revenue as folks or other companies look for sourcing within the United States, those manufacturers may actually increase in value.”
The interview also touches on supply chain vulnerabilities, which were exposed during the COVID-19 pandemic. The pandemic underscored the risks associated with relying on distant suppliers and the potential for disruptions to halt operations. This experience has further incentivized businesses to diversify their sourcing and prioritize domestic suppliers to create more resilient supply chains.
In the context of M&A, buyers are particularly attentive to how tariffs and potential supply chain disruptions could affect a target company’s profitability and stability. They assess how these factors might influence manufacturing costs, pricing strategies, and the overall attractiveness of the business.
The Lingering Influence of Political History
The M&A market, like many sectors of the economy, does not operate in a vacuum, and the influence of political history plays a significant role in shaping its dynamics. Burden emphasizes this point, noting the political events of the past several years have had a tangible impact on market sentiment and activity.
Burden observes an interesting dichotomy in how political factors are discussed. She notes while the selling community may not have explicitly voiced their concerns about the political climate in the past, there was a palpable sense of relief following certain political transitions.
“And it’s kind of interesting in the selling community, while they may not have talked about the politics of things, they all breathed a sigh of relief when January hit,” Burden states. This suggests political uncertainty can create a drag on market enthusiasm, even if it’s not always openly articulated.
This shift in political sentiment has contributed to a sense of “guarded optimism” in the market. Burden clarifies that optimism exists even “in light of layoffs and similar events,” indicating other factors, such as a perceived stabilization of the political environment, are playing a more dominant role in influencing seller confidence.
Burden also connects this optimism to a broader societal concern about economic responsibility. “None of us wants to leave our children with the burden of trillions of dollars worth of debt for centuries to come,” she says. This suggests a desire for long-term economic stability and a sense of fiscal responsibility are underlying factors influencing market sentiment.
In terms of market behavior, Burden indicates this increased optimism is translating to greater seller eagerness. “No, we’re definitely seeing it, and they’re glad,” she affirms. She contrasts this with the previous year, suggesting the election process may have contributed to a more hesitant seller stance.
Navigating the Economic Factors Influencing M&A
In the face of these economic factors, businesses involved in M&A transactions must adopt proactive strategies to not only withstand these pressures but also to enhance their value and attractiveness in the market.
Analyze Input Costs
For sellers, particularly those with manufacturing businesses, a key challenge involves managing input costs, such as the cost of raw materials. Burden uses the example of businesses that rely on materials like steel, aluminum, and iron. She points out a significant shift in sourcing strategies: “For the past 20 years, they’ve been importing these because they could get them cheaper from China, and all of a sudden, it’s going to cost them a whole lot more.”
This increase in cost, coupled with the supply chain issues we ran into during COVID when you couldn’t get products for months and months on end, has prompted smart business owners to seek alternative solutions. Burden highlights many businesses have proactively addressed these challenges by shifting to domestic sources.
Burden shared a story illustrating how businesses strategically respond to economic pressures. She recounts the experience of a client who owned a company that manufactured platforms for air conditioning units. The owner, upon realizing the significant amount spent annually on the screws needed for their operation, decided to acquire a screw manufacturing company, thus saving the business hundreds of thousands of dollars per year in manufacturing costs.
Diversify Your Customer Base
Beyond cost management, Burden advises sellers to focus on enhancing their business’ overall attractiveness to potential buyers. A key aspect of this is diversification. Smart owners should focus on diversifying the customer base and diversifying their vendor sources so they’re not as limited.
This reduces risk for potential buyers and makes the business a more stable and desirable acquisition target. “Buyers want to know there’s more than one customer, there’s more than one source for the aluminum tubing used in the production process, etc.” Burden adds.
Due Diligence in Uncertain Times
In an M&A environment characterized by economic instability, the due diligence process takes on heightened significance. Buyers approach this phase with increased scrutiny, aiming to mitigate risks and ensure the soundness of their investment. Burden emphasizes several key areas of focus for buyers during due diligence.
A primary concern is verifying the accuracy and reliability of the seller’s financial data. Buyers want to confirm “the numbers work and the numbers are real and have been for several years,” Burden states. This involves a thorough examination of financial statements, revenue projections, and other relevant financial documents to establish the true financial health of the target company.
Burden notes that Quality of Earnings reports, once reserved for very large companies, have become more common in transactions involving smaller businesses. “Even though it’s a very expensive process, a buyer will pay the price just to know what they’re buying is valuable,” she explains. This willingness to invest in thorough due diligence underscores the importance of risk mitigation in the current M&A environment.
Beyond the raw numbers, buyers also assess the stability and predictability of the seller’s revenue streams. “They also want to know the customers are sticky,” Burden explains. This means evaluating customer retention rates, contract terms, and the overall strength of customer relationships. The goal is to ensure the acquired business will not experience a sudden drop-off in revenue following the transaction.
Employee Retention
Employee retention is another critical aspect of due diligence. Buyers seek assurance key employees will remain with the company after the acquisition. “They want to know the employees are not going to run away the day the business is sold, and there’s some longevity there,” Burden notes.
To address this, buyers often engage with key employees and may include employment contracts as part of the deal. “Certainly, by the time the business is ready to close, the buyer will have met with two or three of the key employees and made them aware there’s probably going to be an employment contract to solidify ongoing employment so the buyer knows they’re not going to run away after the sale,” Burden adds.
Burden emphasizes while these due diligence considerations are important in any M&A transaction, they are “scrutinized a little more than usual” in uncertain economic times. Buyers are less willing to take risks and demand a higher level of assurance before moving forward with a deal.
The Role of Private Equity
Private equity firms play a significant role in the M&A market, acting as both buyers and drivers of deal flow. Burden provides insights into the activity and influence of these firms, particularly within the Atlanta market, while also offering a broader perspective on how they react to economic shifts.
Burden also offers a historical perspective on how private equity firms and the M&A market, in general, respond to significant economic changes. She observes a cyclical pattern in their behavior: “What generally happens is there’s panic when there’s a major change like there’s going to be a tax increase or there’s going to be an interest rate increase or there’s going to be a 25% tariff on product coming into the country.”
This “panic phase” is characterized by initial uncertainty and a cautious approach. However, Burden emphasizes this phase is typically followed by a period of adjustment and adaptation. “Everybody goes into shock for a little bit, and then they level out and figure out a way to get through it,” she explains.
She suggests the market is currently in this transition, moving past the initial shock of recent economic and political events. “I think we are at the end of the panic phase and…we’re in the next portion of ‘okay, we’ve been through worse.’ We’ve been through this before. Let’s take a look at things and let’s see how we can get to the other side,” Burden elaborates.
Looking Ahead
Despite the confluence of economic factors influencing M&A, Burden maintains a “guardedly optimistic” outlook. She acknowledges the difficulty of predicting the future but stresses the importance of sound business decisions and adaptability. “At some point you have to trust you’ll make good value decisions in running a business,” Burden says.
The M&A market in Q2 2025 is shaped by a complex interplay of economic factors. Interest rates, tariffs, and political influences all contribute to the challenges and opportunities businesses face. By understanding these dynamics, employing proactive strategies, and conducting thorough due diligence, buyers and sellers can navigate the market effectively and achieve their strategic objectives.
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