M&A Insights Series: Katie Balson of Origin Merchant Partners Discusses the Market Outlook, Its Challenges and Opportunities, and Advice for Buyers and Sellers
To help businesses, investors, and deal professionals better understand the evolving independent sponsor landscape, Robert Connolly – a partner in LP’s Corporate Practice Group and leader of LP’s Independent Sponsor team – shares a series of conversations with independent sponsors, capital providers, and other professionals.
Below is his conversation with Katie Balson, a Director at Origin Merchant Partners, a top M&A advisory firm based in Chicago. Katie has over 15 years of experience in middle-market investment banking. Before joining Origin Merchant Partners, Katie worked at E&Y Corporate Finance, advising numerous industrial product companies serving a range of end markets. Katie shares insights on the current state of the M&A market, private equity and independent sponsor activity, challenges and opportunities, and advice for buyers and sellers.
The responses below have been edited slightly for brevity and clarity.
How would you describe the current state of the middle market M&A landscape?
The first quarter of this year saw a decline over the fourth quarter of last year in terms of overall deal volume and middle market deal volume. Not surprisingly, it was mainly attributable to heightened trade concerns and tariff issues, as well as the apparent slowdown of the US economy in the first quarter.
Generally, strategic buyers are still active. Balance sheets are generally still very strong. And because there are concerns about supply chain disruptions due to the tariffs, strategic buyers might be more motivated to acquire in the US, which bodes well for M&A.
Private equity has a ton of capital to invest right now. Globally, the dry powder value sits at about $2 trillion, so the market is generally positive right now with some caution.
What are the key drivers of deal activity in 2025?
Private equity firms have a mandate to invest and provide returns to their limited partners, so they’re always looking for quality investment opportunities. On the strategic side, particularly with non-US-based companies, they are likely looking to acquire in the US to avoid or mitigate the impact of US tariffs.
One of the trends we’ve seen recently, which I believe will become even more prevalent in 2025, is take-private deals. They have been increasing significantly as the markets have been very volatile, and there have been some compressed valuations in the public markets. Private equity is taking advantage of this, allowing them to find value opportunities with some of these compressed valuations. With take-private deals, they can implement some of their operational improvements and achieve margin enhancements outside of the public markets. That’s appealing to them right now, and I think we’re going to see more of that.
Are there any industries showing outsized growth or resilience in the current environment?
Not surprisingly, industries related to renewable energy (such as solar and electric vehicles), digital industries (such as e-commerce and telehealth), and, on the manufacturing side, any type of infrastructure that’s related to the energy and digital industries (such as infrastructure related to electrification and data centers) are all showing outsized growth and resilience.
What is your overall outlook for middle market M&A activity for the remainder of 2025?
We’re cautiously optimistic for the second half of the year, with interest rates stabilizing, economic growth, and the abundance of available capital. We still have some uncertainty in the trade policy environment and geopolitical environment, so there’s some caution there, but the outlook is generally positive.
It’s an interesting time. Deal activity is still very strong despite some of these hiccups in the economy and trade policy issues. It’s just a matter of managing through that.
What trends are you seeing in private equity activity in the middle market?
There’s a ton of money on the private equity side. Dry powder sits at $2 trillion right now. Private equity firms that have recently acquired platforms have a mandate to grow, so they will need numerous add-ons. They have aggressive growth strategies in place, and even though private equity is notorious for paying value prices, they will pay higher multiples for compelling business characteristics. We’ve seen this in our own deals lately. They will pay higher multiples for anything that’s high-growth, high-margin, and has competitive moats that are attractive to private equity.
One of the interesting trends in P/E that we’ve observed over the last couple of years is longer hold times for their investments. The average P/E exit hold time hit a record eight and a half years in 2024, which is more than double when it was a little over four years in 2007. That may signal pressure for P/Es to grow to exit in the near term.
Are independent sponsors playing a larger role in deal activity in your sector?
Independent sponsors are a growing force within private equity, and they continue to become more prevalent and more sophisticated. There is no shortage of target companies or available capital, so independent sponsors can take advantage and be successful if they find the right opportunities.
What are some common challenges or advantages independent sponsors face in today’s market?
They will always face challenges in sourcing deals because they’re smaller and don’t always have the same level of business development infrastructure as traditional private equity firms. I think that will continuously be a challenge. They’re also at a disadvantage to traditional P/E firms when a competitive process is underway and they’re competing with private equity firms that have committed funds. Sellers are very wary of the unfunded nature of independent sponsor offers. Because they raise capital as needed, there is execution risk and sellers are wary of that. Another disadvantage is timing. Because they raise equity post-LOI, that can extend the time to close. That’s a disadvantage to them in a competitive process.
However, one of the things we see with independent sponsors – and we’ve seen this in some of our deals too – is they tend to partner with family offices, which is a nice marriage. When independent sponsors source equity on a deal-by-deal basis, family offices can be very strategic, especially if they have experience or industry expertise and can provide more than capital to the independent sponsor. That can enhance their offer in a competitive situation.
Independent sponsors face challenges when they’re in a competitive process with traditional P/Es, but if they can bring an angle to the table – such as industry experience or partnering with another group (like a family office) that has experience – that can be an advantage to them. There are ways they can mitigate the challenges.
What are the biggest challenges facing middle market M&A in 2025?
Not surprisingly, it’s economic uncertainty. Uncertainty is bad for the economy. It’s bad for business and it certainly results in major caution for M&A processes both on the sell side and the buy side. The uncertainty is stemming from the trade and the tariff issues in the US, but there are also continued inflation concerns. And given the contraction in the first quarter, there’s economic uncertainty as well. Uncertainty leads to caution in the process.
How are potential tariffs or trade restrictions impacting deal flow or valuations?
For businesses insulated from tariffs, it’s not a significant issue. There’s a lot of noise surrounding tariffs, but despite that, the private equity environment is really strong, and I think some of these private equity firms are viewing the noise as a buying opportunity, particularly in the US. To the extent that companies impacted by tariffs can pass those cost increases to customers, that mitigates challenges as well. The exception here could be China, which could have long-term implications given the size of the market and the difficulty of making a deal there.
How are buyers and sellers navigating market volatility and broader economic uncertainties?
They’re both being more cautious. To the extent a seller’s impacted by tariffs, they will think hard about when it’s the right time to go to market. Buyers are cautious when their target is impacted by tariffs. There’s a lot of caution on both sides.
Sellers can try to mitigate the best they can and highlight their ability to pass through costs and the stickiness of their customers. For buyers, there will be an increased use of earnouts to mitigate this risk and ensure the seller can achieve its forecast in a tariff environment.
Where do you see the greatest opportunities for dealmakers in the current market?
For buyers, it will be identifying undervalued assets. Given that the public markets have been somewhat compressed, there is some value to be had, particularly with some of the take-private opportunities where buyers can engage in value investing.
What advice would you give to business owners considering a sale in the next 12-18 months?
Start preparing early. Make sure your historical financials are in order and will withstand due diligence. Make sure you fill any important and key management roles that are vacant. Spend some time preparing a forecast that’s aggressive but achievable because you want to be able capture all that upside, but you don’t want to fall short of a forecast during a process.
An issue we frequently encounter when selling manufacturing businesses is that sellers have made investments that haven’t been fully reflected in their financial performance. In some of those cases, you might want to wait to start a transaction until you see the fruits of those investments. Another way to approach it is to prepare pro forma financials that incorporate those expected results, but then you must ensure you achieve those results.
It’s also critical to hire a team of advisors. Investment bankers, lawyers, tax professionals, and wealth managers should be lined up before embarking on a process.
The final piece of advice is to establish a transition team within the organization, particularly if the owner does not plan to maintain a management role post-transaction.
What steps can buyers take to position themselves as the preferred bidder in competitive processes?
We just closed a really large transaction in April. We had double-digit LOIs come in, and most of those were from private equity. Those offers that rose to the top, in addition to value and purchase price, were the groups that could position themselves not only as capital providers but also as partners who would bring more than just money to the table. Whether it is industry know-how or proven success in operational optimization, efficiencies, access to markets, or potential new customers, that can also position buyers well.
Also, make sure that interests are aligned between management and the buyer. Management incentive plans tied to business performance help everybody.
In a competitive situation, if buyers can present a compelling story to justify their interest and show that they’re not just kicking the tires but are committed to the process, that is important. They would also be well served to communicate a comprehensive value proposition to the seller beyond the purchase price, such as committing capital for further growth or investment in organic and inorganic growth or offering incentive plans for employees.
Finally, buyers who can offer flexibility in terms of transaction structure will also put themselves in a good position. Beyond the purchase price, there are ways to differentiate yourself, and structuring the transaction in a way that helps the seller achieve their particular objectives could be meaningful.
For more information on Katie Balson, visit her bio. For more information on Origin Merchant Partners, visit their website.
To read other articles in this series, please see here: Insights | LP (lplegal.com)
Interested in participating in a future interview series? Please contact Robert Connolly.