Momentum in the M&A market has continued into 2025, and there is general optimism that the new Administration that descended on Washington this week will be good for the business environment. Although there is some uncertainty around what, if any, tariffs are enacted and whether their effect on prices would potentially be blunted by falling energy costs and efficiency efforts, assuming “drill baby drill” and “DOGE” have a near-immediate effect. And we don’t know about the scale of the deportations and its impact on wages.
However, if M&A activity started to take off last year due to the expectation of lower interest rates, then what effect will the 10-Year Treasury rate shooting above 4.5% have on dealmaking? The latest inflation numbers did not help either in terms of reassuring buyers that the Fed would stay on its cutting schedule in 2025. Could we see some renegotiations on property prices for deals that have all-but-closed again?
This is not a return to the fast-rising interest rate environment of 2022 and early 2023, so any impact would be relatively minimal. But cap rates may not, and should not, continue to compress, which would delay some owners of performing, higher quality properties from selling. Or this will be a temporary blip, and the M&A frenzy will commence. But we’ll be sure to assess the mood at the ASHA conference in Phoenix next week. Looking forward to seeing many of you there.
