Optimism about the dealmaking environment has reached a five-year high, according to Citizens’ 2025 M&A Outlook. The 14th annual survey of 400 leaders at U.S. middle-market companies and private equity firms revealed that 54% of decision-makers believe the current M&A environment is strong.

Economic growth and easing inflation are among the most-cited factors fueling middle-market businesses’ M&A plans in 2025. Fifty-seven percent of all respondents expect the U.S. economy to improve in the year ahead, up from just 47% last year, and 59% of middle-market companies believe that the economic growth backdrop will make business easier.

The bullish outlook for dealmaking is also supported by more upbeat expectations for valuations, particularly among PE firms and larger middle-market businesses. Nearly 90% of all respondents expect valuations to be stable or higher over the next year.

“The prevailing headwinds of recent years have really moderated,” said Jason Wallace, head of Citizens M&A Advisory. “We see companies and sponsors coming into 2025 with big plans and this year’s survey shows how focused they are on the growth environment.”

PE firms are especially bullish. Sixty-eight percent believe the current M&A environment is strong, an increase from just 52% last year. In addition, 64% expect deal flow to increase in 2025, particularly as more PE-backed assets come to market.

While dealmaking conditions vary across sectors, buyers and sellers are perceived to be on fairly equal footing overall, supporting confidence in the outlook. Notably, the seller pool has expanded substantially, with 73% of middle-market companies identifying as potential sellers in the year ahead, an increase from 63% last year.

Meanwhile, PE firms look ready to shop. Ninety percent of sponsors that anticipate an increase in deal flow in 2025 also expect to buy more than they did in 2024. This combination of willing middle-market sellers and eager PE acquirers could create a conducive environment for dealmaking, especially as small and mid-size businesses become increasingly comfortable with PE partners.

“Valuations have stabilized and buyers and sellers find themselves on fairly equal footing, which should reinforce confidence in dealmaking,” added Wallace. “The enthusiasm is palpable, and we are seeing a high level of M&A interest among both corporates and sponsors.”

Other key findings from the 2025 survey include:

• Growing openness to partial sales. One factor supporting the growth of the seller pool in 2025 is an elevated interest in partial sales. In fact, among middle-market companies, the majority of would-be sellers say they are more open to a partial sale or ancillary business-unit sale, rather than a full exit.

• Artificial intelligence could drive dealmaking. A recent Citizens survey shows that clear use cases for AI are emerging. As the technology continues to mature, the race to add AI capabilities could support dealmaking. In fact, among PE firms that anticipate an increase in deal flow this year, 38% cite a desire to add AI companies and capabilities to their portfolio as a key driver of activity, up from 25% last year.

• Interest in international deals persists. Among middle-market companies, 52% of sellers and 46% of buyers say they would consider international deals. Notably, PE firms are even more bullish. Seventy-four percent say they are significantly more likely to consider investment opportunities outside the U.S. in 2025, up from 54% last year.

The survey was conducted among U.S.-based middle-market businesses ($25 million to $1 billion in revenue), as well as PE firms (fund size less than $1.5 billion) that are active in the acquisition and sale of U.S.-based companies with revenue between $50 million and $1 billion. Core business sectors included Citizens’ industry specialties of aerospace, defense and government services; business services; consumer; real estate, gaming, lodging and leisure; healthcare; industrials; technology, media and telecommunications; transportation and logistics; and financial services, as well as other industries.

Business executives at 274 middle-market firms and 126 PE firms who are directly involved in decision-making related to M&A (owners/partners, CEOs, presidents and other C-level executives and directors) completed a phone or web-based survey between October and November 2024.