Beyond Dealflow: The Debt and Talent Dynamics Reshaping M&A

The DealMax 2025 keynote brought together leading experts to explore the multifaceted factors influencing private equity and M&A. While our previous analysis covered dealflow expectations, today we're focusing on two critical dimensions that will significantly impact transaction outcomes this year: debt market recalibration and workforce evolution.

The Structural Shift in Debt Markets

S&P Global's Ruth Yang provided a compelling assessment of how higher funding costs have fundamentally altered the M&A ecosystem:

"M&A has boomed over the past decade on the back of the low interest rate environment, which de-emphasized and de-risked the role of debt. Today's market is very different."

This recalibration is quantifiable:

• Equity contributions in buyouts have risen to 56% since 2022 (vs. 50% pre-2022)
• Purchase price multiples for LBOs have declined about 15% over the last two years
• Total leverage has fallen by 20%

Most concerning for near-term activity: several major institutions have dramatically scaled back their M&A forecasts. Goldman Sachs has slashed its prediction of a 25% increase in US M&A to just 7% for 2025.

Private Credit: Not an Automatic Solution

A common assumption is that private credit will step in to fill lending gaps during market turbulence. Yang offered a more nuanced view:

"Credit is credit. Private credit must consider the same credit headwinds and performance risks that the broadly syndicated and bond markets consider."

While private credit has shown resilience in adapting to higher rates, continued market volatility raises questions about its capacity to maintain this performance through an extended period of instability.

The Human Capital Revolution

Insperity's Donna Hare highlighted how workforce considerations are becoming increasingly central to deal success amid economic uncertainty:

"It's no longer the days where you can buy a company and that company is just running perfectly. There's transformation that needs to happen."

Several trends are reshaping the talent landscape for portfolio companies:

• Generational shifts as older workers retire
• Middle-market companies lacking sophistication in talent development
• The accelerating impact of AI on workforce roles and capabilities

AI's Evolution in the Workplace

The intersection of AI and human capital management represents a particularly transformative trend. Hare described an evolution in functionality that is already reshaping operations:

"Now there's an evolution of what we call agents - not only are you searching for information and it produces something for you, but it will actually do the work."

For portfolio companies, particularly those held longer due to delayed exits, these technologies offer significant operational improvement opportunities through better analytics and automation.

The Culture Premium (Without the Premium Price)

Perhaps most surprising was Hare's insight on total rewards programs. A recent study revealed that the variance in benefits offered between top-performing and average companies was minimal - but the outcomes were dramatically different.

"The top performing companies were not only excelling in their ability to attract and retain talent, but also their ability to attract and retain customers. And the good news about total rewards is the things that they were doing to get the better results don't even cost you any money. It's free. It's culture, it's communication."

This insight has particular relevance in the current environment, where capital constraints may limit large investments in compensation programs. The ability to drive performance improvements through cultural elements represents a low-cost, high-impact lever for value creation.

Enhanced Equity ROI Approach

The insights from DealMax 2025 point to both challenges and opportunities in today's M&A landscape. Captarget's services are specifically designed to help you navigate this environment:

Maximize ROI on Increased Equity Contributions
As equity contributions rise to 56%+ of deal value, finding the right targets becomes even more critical. Our research-driven approach ensures you're deploying that increased equity into opportunities with genuine potential for sustainable growth and value creation.

When each acquisition requires more of your fund's capital, the quality of each opportunity becomes paramount. Captarget's Pipeline Development service systematically identifies companies in the underserved $1-10M EBITDA range where quality opportunities often exist without investment banking representation. This focused approach helps you identify businesses with:

• Sustainable competitive advantages that justify increased equity investment
• Strong management teams ready to navigate today's complex operating environment
• Business models that can thrive even in volatile debt markets

Build Your Pipeline Now for H2 Success
With deal activity expected to accelerate in the second half of 2025, our systematic outreach approach helps you build relationships today that will convert when the market heats up. By focusing on the underserved $1-10M EBITDA segment, we help you avoid the competitive dynamics that drive premium valuations in banker-led processes.

Contact us today to discuss how these market insights apply to your acquisition strategy for 2025.