MidCap Advisors’ outlook for 2025 

Posted by | Fuld & Company

Douglas T. Hendrickson, Co-Founding Partner at MidCap Advisors, shares his perspectives on the shifting M&A landscape, economic policy, and how AI is reshaping dealmaking with Nilesh Sharma, Senior Vice President, Research & Advisory Services at Fuld. In this discussion, they also explore trends and predictions for Middle Market Mergers & Acquisitions 2025. 

Nilesh:  

The middle market M&A deal activity seems to be finally picking up. Do you expect the momentum to continue through Q1 and into 2025, and which sectors do you think are poised for higher activity? 

Douglas:  

It’s a very interesting question because we have a new administration that went into office last week. He is, of course, proposing a lot of changes in the economy, such as tariffs, lower inflation, lower interest rates and lower taxes, as well as other initiatives including more energy drilling. But it’s very hard to tell at this stage what he’ll be able to accomplish and what the impact will be on the M&A market. I do feel pretty confident that President Trump is very pro-business. He’s a deal guy, he’s going to promote economic activities that are helpful or favorable to the middle market.  

There are really two M&A markets with very different dynamics – the large corporate M&A market, and the lower middle market M&A market where MidCap plays, as does Fuld. I believe this market will continue to be very active in 2025 and we’re off to a very strong start. We’ve never had a pipeline as great as we currently have, partly because of new hires, so I’m encouraged.  

Nilesh:  

What are your expectations for the Fed funds rate this year? Do you think a more accommodative monetary policy will have a meaningful impact on lower middle market deal activity in 2025? 

Douglas: 

It remains to be seen what happens with interest rates, but I don’t think Jerome Powell is going to make drastic moves with the Fed funds rate anytime soon. I think that they’re probably just going to hold the line, not put up rates, and that’s a good thing. The credit markets pulled back quite a bit when the Fed was fighting inflation as rates started to go up under the prior administration, but the credit markets have responded appropriately to the new administration by pulling back a little. I can see this continuing a little further, but it won’t be overwhelming. We need to wait and see how President Trump and Jerome Powell get along and the impact this has on interest rates and the economy. 

Nilesh:  

Where do you see as the most significant improvement in investment activity? Do you believe the financial buyers will be more active in 2025 than they were over the last two years? 

Douglas:  

I hope so, but it’s been a relatively stagnant market for a lot of PE firms with higher interest rates and higher multiples keeping them on the sidelines, leaving them unable to sell as many portfolio companies as they have in earlier years prior. It’s been a relatively stagnant market for a lot of the P/E firms. I don’t think the floodgates are now going to open up, but I do think we might gradually see more activity. PE firms are being very cautious and selective, waiting to see what the impact of the new administration will be. 

Nilesh:  

What are the current sentiments in your area of expertise? Do you expect the insurance sector will witness an improvement in deal activity in 2025? 

Douglas:  

In the financial industry, particularly within insurance, we’ve seen a significant slowdown in M&A activity among the major consolidators. Many of the active players in recent years have either been sold, are preparing for a sale, or have pulled back from acquisitions. For example, firms like Assured Partners and NFP have been sold, while Integrity Acquisitions have pulled back. I sense that we’ll see a drop in valuation multiples because even the most aggressive buyers have agone quiet. While some firms, like Hub and the Hilb Group, are still in the market, there are far fewer active buyers today. 

On the other hand, in the lower middle market – where we sit – fragmented industries are the most active. One example is insurance distribution where thousands of agencies operate in cities across the country, driving consolidation. Private equity has also warmed up to the home improvement sector, such as HVAC, roofing and flooring, which have similarly fragmented local markets. We’re seeing similar trends in parts of the healthcare industry. These large, fragmented sectors continue to be the primary drivers of M&A activity, and many still have a very long runway for consolidation. 

Nilesh: 

Are you witnessing an increase in the use of AI among investment banking professionals in their deal process? Are there any tools/technologies you are using and see getting entrenched in investment banks? 

Douglas:  

We’re becoming more and more active with AI and our bankers use it almost daily. I know I do. We’re very cautious about it for security reasons and the data is not particularly accurate, but we use it regularly. We’re also developing an AI driven platform here at Midcap Advisors to do market research, pitchbooks, CIMs, teasers and the various pieces of collateral you need to execute a transaction and aim to roll it out later this year. It probably won’t be perfect, and bankers will need to be very active in finalizing all the documents needed, but we are piloting it to see whether it’ll make us smarter and more efficient. I’m very excited about it. We are also using AI to help us with business development, but again this it at a very early stage. It remains to be seen how effective this will be, but it’s here to stay, there’s no doubt about it. I think every investment bank, large or small, and every private equity firm is using AI to a certain extent. A lot of the larger firms, both investment banking and PE firms, have created their own secure in-house AI platforms, which makes a lot of sense because if you’re going to start asking ChatGPT or AI about your clients and transactions, that will bring a lot of confidential information into the open. So, we’re being very cautious about that. 

About Douglas T. Hendrickson 

Douglas is a Co-Founding Partner at MidCap Advisors and is a leading M&A advisor to corporate clients and business owners in numerous industries. He has over 25 years of experience in financial services and has advised large manufacturing businesses and financial institutions on senior debt financings and middle market companies in areas of strategic acquisitions, capital structure, and sale transactions. 

Before co-founding MidCap Advisors, Doug spent 15 years with JPMorgan Chase working in the Financial Institutions Group, Corporate Banking Group and Regional Bank where he filled a variety of positions including that of Senior Banker and Senior Credit Officer. As SCO he was responsible for working on and approving financing of up to $250 million for all types of transactions including mergers and acquisitions, corporate spin-offs, restructurings, and growth financings. 

MidCap Advisors is a New York-based, boutique investment banking firm providing sophisticated financial advice and M&A transaction services to private companies with revenues of $5 million-$250 million. Its founding partners, Doug Hendrickson and John Poppe, built MidCap based on their deep experience in the insurance and financial services industries, as owners and operators of companies in those sectors. Over the past 20 years, MidCap has become a recognized leader in insurance and financial services M&A, assisting owners of retail agencies, retirement & wealth firms, and wholesale MGAs in dozens of successful sale transactions, valued at over $4 Billion. It has also developed additional areas of expertise in healthcare, manufacturing, and business services M&A, and expanded into diligence, consulting, and direct investing. 

Tags: Artificial Intelligence (AI), Douglas T. Hendrickson, Economic Policy, Investment Banking, M&A Trends 2025, Mergers & Acquisitions, private equity