The transactional market continues to evolve at a rapid pace, shaped by shifting economic conditions, financing trends, and the ever-changing landscape of deal-making. To help unpack what this means for businesses and investors today, we sat down with Caravel Partner Jeff Klam, whose practice focuses on mergers and acquisitions (M&A) and financing transactions.
With extensive experience guiding clients through complex deals, Jeff brings a front-line perspective on where the market is headed, what opportunities are emerging, and the challenges that decision-makers should be watching closely.
The State of the SME Market
In the SME market, deal flow remains uneven and highly dependent on industry. Technology companies — particularly those with an AI component — are strong acquisition targets, while many other sectors are experiencing slower activity. That said, there is potential for an upswing as private equity firms continue to hold substantial capital ready for deployment and the financial community adjusts to the ongoing uncertainty surrounding U.S. tariffs and trade disputes.
Ultimately, businesses with proven track records and solid fundamentals will continue to attract buyers; however, outside of a few hot sectors, today’s market is best described as lukewarm.
Creativity in Deal Structures
When reflecting on year-over-year trends, Jeff noted a significant increase in reliance on valuation bridging mechanisms such as earnouts, deferred payments, founder rollovers, and vendor take-back notes. In today’s buyer-driven market — where sellers remain firm on achieving their desired price — structuring a deal requires creativity. These tools are becoming essential for bridging valuation gaps and getting transactions across the finish line.
Looking Ahead to 2025
For the remainder of 2025, the hope is that the market rebounds from the typical summer slowdown, global trade issues find resolution (or at least markets learn to adapt to the uncertainty), and geopolitical tensions ease. With so much capital waiting on the sidelines, even a modest shift in sentiment could spark an outsized increase in transaction activity.
Preparing for a Sale
For business owners considering a sale, early preparation is always advisable, as the process almost always takes longer than expected. At the same time, it is critical that founders and senior executives avoid becoming so consumed by deal preparation that they lose focus on running the business itself. Strong operational performance remains the single most important driver of value.
That said, if your sector is experiencing a slowdown in M&A activity, now may actually be the perfect time to prepare. Getting your “house in order” ensures you are ready to act quickly when market conditions shift.
But Don’t Worry, Deals Are Still Happening
Despite current challenges, deals are still being completed. Buyers continue to pay a premium for well-run businesses with strong fundamentals that transcend short-term fluctuations. Owners who have invested in laying the right foundations and building sustainable momentum are well-positioned to attract interest, even in a more cautious deal-making environment.
The Role of AI in Transactions
Finally, we considered how technology — particularly legal tech and AI — has reshaped the transactional landscape. On the buy-side, AI tools are increasingly being used to scan potential targets, analyze market data, and assess strategic fit more efficiently. On the legal side, AI has become a powerful tool for accelerating due diligence and streamlining processes, often reducing costs significantly.
That said, most platforms remain prone to errors, which makes the role of legal counsel as important as ever. Document drafting is another area where AI is starting to contribute, though in Jeff’s view, the technology is still in its early stages.
Learn more
If you’d like to hear more on this topic, reach out to our team at Community@caravellaw.com for access to our M&A webinar series.
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