M&A deals are still out there if you know where to look, say bankers

When mergers and acquisitions bankers come to reflect on 2025 they will probably divide the year into pre and post “liberation day”.

Before April 2 deal sentiment was improving and the valuation gap between buyers and sellers of companies seemed to be narrowing. This second point is critical for private equity funds that need to sell companies in their portfolios, or have them listed on the stock market, and return money to investors.

The chances of that happening have been made more complicated by the tariffs. And the feeling among bankers and their clients since Trump’s tariff announcement has deflated — at least in some quarters.

This is because a banker’s or a client’s reaction to tariffs is largely a symptom of where they sit in relation to them. For example, industrial and consumer sectors that involve the making and supply of physical goods across borders will take a larger hit than financial and technology software companies. The same goes for the deals tied to them.

“Anything that has inventory exposure to China faces difficulty while sectors like financial services and fintech are much more active,” says Sean Murphy, Houlihan Lokey’s head of transaction advisory services.

“The latter do not have direct exposure to tariffs but do have exposure to various geopolitical issues which currently seem easier to navigate.”

Bears vs bulls

At the Houlihan Lokey One conference in New York in May, which focused on private markets, the mood around the consumer sector was noticeably more negative than for fintech or financial services. Prospects for oil and gas combined with industrial M&A deals were somewhere in the middle.

One speaker on the consumer day described the second half of 2024 as characterised by “a lot of optimism and increased activity” while “2026 has to be a better year” since this year “so far has been kind of hellish”.

According to Houlihan Lokey’s growth investor survey, prior to the US tariffs, eight in 10 investors expected macroeconomic conditions to remain stable or improve through 2025. Post tariffs, seven in 10 investors expect macroeconomic conditions to weaken.

The same speaker said: “There are companies that have to be sold and money has to be put to work, as something has to happen and you cannot sit on the sidelines and be terrified your entire life.”

Houlihan Lokey’s Murphy says that one risk companies hit by tariffs face is the need to ensure they can still fund their day-to-day operations. If tariffs increase costs, companies must be prudent in how they manage working capital and revolver capacity.

For example, a typical revolving credit facility may not be sufficient to fund the total cost of delivering products to consumers when it is nearly two times above the original cost of materials in order for the inventory to enter the US under the tariff regime, he observes.

However another banker speaking at the event pointed out that one positive amid the deal gloom for the…