CIBC US Middle Market Investment Banking’s Alex Eskra and Ryan Chimenti join Ron Miller to discuss the current state of U.S. middle market M&A. They discuss M&A transaction volume, private equity activity, valuations, and the credit markets. Ryan also provides his insights on current trends within the industrials sector.
Ron Miller: Welcome to The Monitor by CIBC's US Middle Market Investment Banking Group, a podcast series focusing on key insights, strategies and trends in the US Middle Market landscape. I'm your host, Ron Miller. In today's episode, I'm joined by Alex Eskra, Director of CIBC US Middle Market Investment Banking, and Ryan Chimenti, Managing Director and Head of our Industrial Vertical. Alex and Ryan bring expertise from their respective areas of focus within our middle market practice. Alex will be discussing the broader M&A market, including transaction volumes, the impact of trade policy uncertainty, valuations and financing dynamics that are shaping the debt markets. Ryan's going to add his insights into the trends that we're seeing and expecting in the industrial sector. Alex and Ryan, thank you for joining me today.
Alex Eskra: Thanks for having us, Ron.
Ryan Chimenti: Thanks for having us, Ron.
Ron Miller: Alex, let's kick off our conversation with transaction volumes. How did trade policy uncertainty shape deal activity in the first half of 2025?
Alex Eskra: Well, it's a great question, Ron. So trade policy has really been the key driver of M&A activity in 2025 and has been really the elephant in the room. We're seeing unprecedented levels of uncertainty that are directly impacting dealmaking behavior. The Trade Policy Uncertainty Index, which measures the number of times that trade policy is mentioned in newspapers, articles, etc. reached all-time highs this year and has really translated into tangible effects on deal volume. Not necessarily directly, but given the fact that this is on top of mind for everybody, you can see the impact to M &A. Looking at the numbers, year to date through April, US M &A deal volume fell about 36% compared to the same period in 2023. What's particularly striking about that is global deal volume in April hit just around 2,500 transactions, which for context is 45% below the 20-year average and represents the lowest level we've seen since February of 2005.
Ron Miller: Wow, Alex, that's quite a dramatic decline. Can you dig into what caused that a little more?
Alex Eskra: Yeah, it's really a perfect storm of factors. The tariff announcements and subsequent retaliatory measures have created trade war 2.0 in the Trump administration. According to recent surveys, dealmakers are reporting extended due diligence periods as they try to assess the tariff exposure and supply chain risks. And a lot of transactions have undergone renegotiations as buyers reassess their exposure to these rising costs. That being said, it's not all bad news. While deal volume has declined significantly, deal value actually increased by 53% from 358 billion to 548 billion from 2023, which was driven primarily by the return of larger deals over $20 billion, indicating a real shift towards quality and scale, with buyers tending to focus more on larger strategic transactions that are better able to handle that uncertainty.
Ron Miller: Interesting. Alex, that's kind of aggregate transaction volume. Can you comment on specifically the lower middle market?
Alex Eskra: Yeah, for sure, Ron. So the lower middle market has not been immune to the uncertainty. Deals under $500 million of enterprise value declined 26% year over year in Q1. And for context, it's declining from about 770 deals to about 570 deals. And the impact has been felt even harder for smaller transactions. So deals under $100 million of enterprise value fell by about 35% year over. Interestingly though, there's some bifurcation. So deal volume between $100 and $500 million actually rose modestly by about 7%, suggesting that while the overall activity is down, buyers are still looking for larger, more strategic opportunities where they can justify the risk.
Ron Miller: Ryan, let's bring in your perspective. How are transaction volumes playing out in the industrial sector this year?
Ryan Chimenti: In the industrial sector, I would say we're really bullish on the year, but it's kind of a tale of two markets. One is based on buyers and buyer behavior. We are seeing private equity being more cautious and not doing as many transactions. It's more of a glass half empty approach for many. And then on the strategic side, we're seeing strategics have greater speed and be more aggressive. And buying companies that they're looking at owning for the next 50 years, from the private equity perspective, you look at the data, GF data reported that in Q1, there were 17 industrial PE deals reported, in the $10 to $250 million enterprise range. If you look at Capital IQ, the data is flat year over year and that's really driven by the strategics going to buy assets that are on their strategic board. We're seeing strategics be more aggressive in 2025 than they were in 2024, but their behavior is similar to what it was in 2023. So the balance of the year looks really good for industrials.
Ron Miller: You kind of started moving to valuation. A lot of what you were talking about was transaction volume. Alex, given this challenging deal environment and the activity that Ryan was talking, what trends are you seeing with regard to valuation?
Alex Eskra: Yeah, for sure, Ron. So valuations have actually increased in Q1 2025. So for context, the average EBITDA multiple for lower middle market deals hit 7.6x in Q1, which represents the highest quarterly average that we've seen since mid-2022, which last year the average was about 7.2x.
Ron Miller: How do you explain these higher multiples?
Alex Eskra: Yeah, it's a good question, Ron. It's really a story that comes down to market bifurcation. And what we're seeing is a true flight to quality. So while overall deal volume is down significantly, transactions that are getting done are predominantly those high quality assets. Premium companies with strong financial performance and those that have sort of that strong economic and tariff resilience are commanding these high multiples. But on the flip side, businesses that are heavily exposed to tariffs or inflation, they're facing longer processes, multiple contraction, increased use of earnouts or other risk sharing mechanisms. And that's quite frankly, if they transact at all.
Ron Miller: Is the financing market supporting these higher multiples - on the deals that are getting the higher valuations is the financing market supporting that?
Alex Eskra: Yeah, absolutely. So the debt markets have been quite supportive, which is helping sustain the valuations for those quality assets. Total debt multiples in the lower middle market reached 4.2x. EBITDA in Q1, which is up from the multi-year average of 3.7x. And this half-turn increase in leverage is significant and reflects continued lender appetite for deploying capital. At least when it comes to those high quality deals.
Ron Miller: In the industrial sector, what are you seeing on valuations?
Ryan Chimenti: Valuations are definitely up, but what we're seeing is the A-quality companies with A-quality management teams. And with the management teams, they're all continuing management teams. For a strategic buyer, we would have always said 20 years ago that management was going to be a synergy. And now they're not a synergy add back - they're a synergy add to these strategic buyers. And we're seeing strategic buyers willing to pay a turn or two more for quality teams that they can bring in to either replace or supplement, their aging teams and drive additional growth. And on the private equity side, we're seeing people, pay up for management teams and, kind of growth strategies that you can hit the ground running on day one instead of 18 months, after close, the hot sectors where we're, seeing a lot of activity, I would say is broadly, we define it as the built environment where Patrick Bremmer and our group spends a lot of time. So it's HVAC, power and utilities, infrastructure, where we've got a lot of tailwinds and you've got themes over the next 10 to 30 years of investment that's gonna be coming and money that's gonna be spent. This creates stability and predictability in terms of revenue and cash flows for those that can run. The other thing we're seeing for the first time in history is for the larger private equity funds, you always paid more for the initial investment on your platform company. So far in 2025, we're seeing that add-ons are trading for a premium to platform multiples. So multiples are going up for the add-ons. The theory was that you pay double digit multiple for the platform, and you pay five to eight times for the add-ons and you buy down your multiple. And then your exit multiple, you get multiple accretion at close for the private equity fund. That's changing and now they're paying up to get the scale and the growth and the teams that are there. They're looking forward to drive value and look for multiple appreciation based on that growth and platform.
Ron Miller: Thanks, Ryan. think that's a great explanation of what's driving the portion of the market that's just really active and gaining significant valuations. I'd like to turn to the debt markets. And Alex, I want to come back to a comment that you made about leverage being up in the first half of the year. What's driving the increase or at least the strength in the leverage market?
Alex Eskra: Yeah, it's a good question, Ron. I mean, there's several factors at play here. So first, there's a lot of competition between both traditional banks and private credit providers. Second, we're seeing fewer higher quality companies coming to market. So lenders are competing a lot more aggressively for the deals that do emerge. The structure of debt financing has also shifted. Senior debt contribution is averaging about 42% of the total deal financing. Sub-debt has increased to 10%. And as a result, we've seen equity contributions decrease. So for the last few years, equity contributions have been sort of slightly above 50% all in. And now we're seeing that decrease to about 48% in Q1. And that shift towards greater debt utilization has facilitated an improved credit market conditions earlier in the year, obviously before the trade policy volatility really took hold.
Ron Miller: Alex, we were talking and discussing that the leveraged loan market is really a good barometer for overall financing conditions. There's not that much data that's available on private LBOs, but you can look at leveraged loan markets. Can you walk us through what happened this year in the leveraged loan market?
Alex Eskra: Yeah, absolutely. The leveraged loan market has sort of reflected the broader story of 2025. So we started the year with pretty stable conditions, but the market basically ground to a halt with the tariff announcements in early spring. For context, the syndicated loan issuance declined pretty precipitously throughout Q1, but April pretty much came to a stop. So for context, just 6.4 billion in issuance in April, which compared to nearly 200 billion in December, marks probably the slowest period since the onset of the pandemic in 2020. In fact, there was actually a 19-day stretch in April without any new loan pricing, which was probably the longest drought we've seen since March and April of 2020.
Ron Miller: I think we know, but talk about what triggered the shutdown in that market.
Alex Eskra: Two words, Liberation Day comes to mind. So for the benefit of our listeners, the weighted average price of US leverage loans dropped pretty dramatically after the Liberation Day announcements. The bid price fell from 96.3 at the end of March to a low of 94.1. following the announcements and the subsequent retaliatory measures by China. And when the bid price drops into the mid 90s, the leverage loan market pretty much effectively shuts down for new issuers because investors find the secondary market a lot more attractive.
Ron Miller: Has there been a recovery since that point?
Alex Eskra: Thankfully. So the situation began to stabilize after policy signals indicated a potential easing of those tariffs. And the real turning point came with the US-China tariff pause and the rollback announcement on the 12th of May, which ultimately helped restore bid prices to their, I'll call it pre-crisis levels.
Ron Miller: That's the leverage loan market, which is a little bigger transaction values. Bring what you just said down to the middle market and how is that affecting LBO financing?
Alex Eskra: Leverage loan market sensitivity to macroeconomic and trade policy development is pretty high. Smaller and mid-sized borrowers who are most dependent on stable credit markets were disproportionately affected with that turmoil. That said, companies that can demonstrate that tariff resilience and stable cash flows, lenders remain pretty active. I think the key is being able to tell a compelling story about how your business navigates the current environment.
Ron Miller: Ryan, Alex just talked a lot about the leverage market and tariffs. Are there anything else that you'd like to share about what's affecting the industrial sector?
Ryan Chimenti: Yeah, so the leverage markets and tariffs are definitely having an impact on a large section of the industrial world. But what we're seeing is that companies that started with reshoring a couple of years ago with the supply chain disruption coming out of COVID. Companies that were able to embrace that and benefit from it are the same ones that are benefiting from tariffs. So there's been a shift in both lenders willing to lend to companies that aren't impacted by tariffs as much as well as companies looking for new supply chain alternatives, turning to US industrial companies that are domestic focused both in their supply chain and their customer base. For those that are negatively impacted by tariffs, whether it's on the supply chain or their customer base, I would say that the debt market is more challenging, and the reason is just because of uncertainty. You don't know if, if tariffs are going to go up next week or down, is this a three month issue or is it a three year issue with that uncertainty? It's tough for banks to step in and, and lend, I'd say a normal market multiple or at a lower interest rate, they're going to price risk accordingly or stand on the sidelines. And for the companies that are impacted by tariffs, if you have that uncertainty in your supply chain, it's just tough to transact because a buyer is going to be looking for risk sharing in structure. And for the great companies, should be cash, cash at close and not risk sharing. Those deals that are impacted, we're just seeing on the sidelines, they might not be B or C assets, they may be A assets, but they just have to wait for certainty to return to the market. But from the bank's I would say this, unlike every other kind of period of uncertainty, the banks are all healthy and looking to put money to work. So those deals that are performing well, perfect, they're not impacted by tariffs, have a line of lenders willing to lend.
Ron Miller: Great, One last question Ryan, anything else you'd like to add on trends in the industrial market or what you're seeing? We've had a very active first half of the year on high quality assets, but just any final thoughts?
Ryan Chimenti: The back half of the year, I think we're going to see similar trends is that it's A-quality assets and A-quality teams. And I would say the key driver of valuation is management. And I brought that up a little bit earlier. But we're seeing good management teams that are continuing, especially at the CEO level, is worth at least two turns of value. And as we look to it, and why is it they've got forecasts, they've hit their numbers. There's less uncertainty within the team and strategies. They've set it and they're going after it. And these same teams, they've been through COVID, they've been through employment crisis, they've been through supply chain, and now they're going through tariffs. It's kind of no big deal. Most teams in the past had to deal with a crisis every decade. And now there's something new every 12 to 18 months and the resilient teams are getting through it. They're growing their businesses and they're building strategic partnerships with their customers. And those companies are gonna continue to transact. The B and the C assets, I think we're years away from seeing that.
Ron Miller: Well, thank you, Alex and Ryan, for your insights today. Let me summarize a couple takeaways that I heard. Trade policy uncertainty reached record levels in the first half of 2025, directly impacting M &A activity. And deal counts in April were at a 20-year low. But while transaction volume declined 36% year-to-date, we saw a huge bounce back in April. And deal values increased significantly. Mostly driven by a fright to quality, larger deals, more strategic transactions, and in some cases, mega deals. EBTA multiples increased, reaching 7.6% in Q1 of 2025, the highest level since mid-22. That's really reflecting premium pricing for these tariff-resistant high-quality assets. Total debt creeped up to 4.2x, with lenders competing. Competing very aggressively for high quality assets. And as Ryan just talked about, companies with really strong management teams, with domestic supply chains that are tariff resistant, really are attracting premium prices and strong valuations and a number of buyers. That leaves us fairly optimistic for the balance of the year as policy normalizes and pent up deal volume comes to the market.
So again, I'll just conclude and say thank you to Alex and Ryan for helping us navigate a pretty interesting market in the last quarter.
Alex Eskra: Thanks, Ron.
Ryan Chimenti: Thanks for your time, Ron. Appreciate you having me.
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