M&A Deal Volume Is Down. The Drought Will Worsen.

Throughout July, President Donald Trump has announced new tariffs on major U.S. trading partners. Those tariffs are slated to take effect on Aug. 1. (Samuel Corum/Getty Images)

About the author: Rami Cassis is an international growth investor and CEO of Parabellum Investments, a family office that invests in midmarket firms worldwide.

Mergers and acquisitions have taken a beating so far this year. Globally, the number of transactions fell nearly 20% in the first quarter. Dealmakers are wishing for something to smile about in the second half of 2025.

But with President Donald Trump’s tariff threats back in full swing this month, I fear they will be disappointed. M&A volumes—particularly across the middle market—will likely get worse before they get better.

The conversation around M&A in the U.S. has been hazy, to say the least. Much has been made of a supposed rebound in deals over the past few months. But when you delve into the figures, it isn’t all good news. While deal values have skyrocketed, with big-ticket mergers pushing M&A dollars up by 26% in the first half of the year, deal volumes sank to a 10-year low. They are down 12% year-over-year.

This points to an atrophy of activity across the middle market. The downturn will only continue—if and when Trump’s “reciprocal” tariffs are implemented.

Trump’s recent tariff announcements lacked some of the theatricality of April’s “Liberation Day,” but they are just as chaotic. Last week, he promised to slap 30% tariffs on Mexico and the European Union and 35% on Canada. Boosting tariffs on the country’s most important trading partners is almost guaranteed to spook investors and businesses into hiding.

The public markets might see right through the president’s new tariff threats and bet he will bend to the market—that is the so-called TACO, or Trump Always Chickens Out, trade. But CEOs across America’s middle market won’t. Midsize companies aren’t as resilient as industry giants. They can’t just shrug off uncertainty.

The first wave of tariff uncertainty in the spring caused 30% of U.S. companies to pause or revisit deals. With the fresh spate of tariff threats, even more businesses could retreat.

If Trump’s tariff threats do come to fruition, inflation will likely intensify, and Federal Reserve Chair Jerome Powell will hold off on cutting rates. This will keep the cost of debt elevated and reduce bidder competition. Private equity firms, which are crucial drivers of M&A, will be effectively priced out. Gaping bid/ask spreads will widen further.

Under these constraints, and given the prospect that tariffs could soon threaten companies’ revenue, middle-market M&A risks falling into a state of paralysis.

Unsurprisingly, that will raise concern for the traditional private-equity fund model. The IPO market in the U.S. is already at a three-year low, with just 84 IPOs by mid-June, compared with 150 in the same period last year. PEs are unable to secure their big-ticket exits and are stuck in their investment periods. As a result, their investors are becoming increasingly disillusioned. Last year, PE assets under management fell for the first time in decades because of a limited partner rout. If macroeconomic conditions worsen and dealmaking stalls further, the sector’s position as a facilitator of M&A could falter.

Forget deals. We could see access to capital dry up.

The outlook becomes even gloomier when one considers that foreign investment coming into the midmarket is also under threat. The American middle market has historically benefited from foreign investment. But because of the volatility of Trump’s policies, these foreign allocations aren’t as plentiful as they once were. In the first quarter of 2025 alone, they dropped by 21% year-over-year.

It is a stark reminder that, in addition to TACO, the ABUSA—“Anywhere But The USA”—trade is coming to the fore. Investor sentiment toward the U.S. is at a record low. If the administration keeps doubling down on tariffs, sentiment may drop to critical levels.

Many dealmakers and investment bankers are hoping renewed political and economic stability in the second half of the year will turn around the worst M&A-drought-fueled run in more than a decade.

I’m not convinced. Any hope of political and economic stability surely went out the window when Trump decided to embark on a fresh round of tariff threats, and it is only a matter of time before his policies send markets spiraling again.

This ever-shifting market environment is simply not conducive to M&A activity. Far from a rebound, I think we will see the chaos strangle middle-market M&A volumes even further.

This current deal slump is only the beginning.

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