Q2 2025 M&A Business Update: Market Adjusts to Policy Shifts and Economic Headwinds
The second quarter of 2025 marked a pivotal period for the U.S. business-for-sale market, as deal activity moderated following a strong 2024 performance while market dynamics shifted decisively in favor of buyers. Transaction volumes declined 4% year-over-year to 2,342 completed deals, driven by policy uncertainty, tightened lending standards, and evolving buyer preferences toward recession-resistant assets.
Executive Summary
Key Market Metrics:
Total transactions: 2,342 (down 4% YoY, down 1% QoQ)
Total enterprise value: $1.9 billion (down 4% YoY, down 6% QoQ)
Median sale price: $352,000 (down 6% YoY)
Median cash flow: declined 2.6% YoY
Average time on market: increased 12 days YoY
The market correction follows a strong 2024 that saw transactions reach multi-year highs amid easing inflation and robust 2.8% GDP growth. However, the Trump administration's sweeping tariff announcements introduced uncertainty that has fundamentally altered deal dynamics across sectors.
Market Drivers and Headwinds
Tariff Impact Creates Sector Divergence
Trade policy uncertainty emerged as the dominant market force, creating clear winners and losers across industry sectors. Nearly half of surveyed business owners (46%) reported increased costs due to tariffs, while 55% indicated that inflation pressures persist. In response, 66% of owners have implemented price increases, though customer acceptance remains mixed.
The manufacturing sector bore the brunt of this uncertainty, with transactions plummeting 28% year-over-year as buyers grew cautious about supply chain disruptions and cost volatility. Median sale prices in manufacturing fell 7%, while cash flow declined 19% and revenue dropped 26%.
Conversely, buyers increasingly targeted recession-resistant businesses, with 73% prioritizing stability over growth potential. This shift benefited the retail and service sectors, which demonstrated resilience despite broader economic headwinds.
SBA Lending Reforms Reshape Deal Structure
Significant changes to Small Business Administration lending rules introduced new complexities to deal execution. The updated regulations, which took effect June 1st, impose stricter requirements including:
U.S. citizenship requirements for borrowers
Enhanced credit checks and tighter debt service coverage ratios
Seller note limitations capping seller financing at 50% of required equity injection
Mandatory personal guarantees for sellers retaining equity stakes
Required stock sale structures for partial ownership transfers
These changes directly impact deal financing, as 62% of buyers expect seller financing while only 23% of sellers plan to provide it. The new standby provisions for seller notes effectively create zero-interest, unsecured loans for the SBA loan term, typically 10 years.
Business brokers report that 41% of deals experienced delays due to these new SBA policies, contributing to the 12-day increase in average time on market.
Buyer Profile Evolution
The buyer landscape underwent notable demographic shifts as economic uncertainty drove career changes. Corporate refugees now represent 45% of all buyers, up from 36% a year ago, while unemployed buyers increased to 15% from 12% in the prior year period.
This trend reflects weakening job security prompting professionals to seek business ownership as a career alternative. Many buyers bring 20-30 years of corporate experience and view acquisitions as offering both financial opportunity and entrepreneurial fulfillment unavailable in traditional employment.
Despite tariff-related caution, 70% of buyers report that trade policies are not delaying their purchase timelines, suggesting underlying demand remains solid for quality opportunities.
Sector Performance Analysis
Retail Sector Resilience
Retail transactions increased 2% year-over-year, defying broader market trends. Essential retail operations—including grocery stores, convenience stores, and pharmacies—attracted premium valuations due to their pandemic-proven resilience.
Median sale prices in retail jumped 13% as buyers targeted high-performing businesses, while median cash flow increased 14% year-over-year. This performance reflects continued consumer demand for essential services despite discretionary spending cuts.
Service Sector Stability
Service businesses maintained their appeal with transaction volume climbing 7% year-over-year. Essential services such as auto repair, delivery routes, and healthcare demonstrated steady demand during economic volatility.
While median sale prices declined 5% and cash flow dropped 3%, revenue increased 5%, indicating sustained business activity even as profit margins faced pressure from cost inflation.
Manufacturing Under Pressure
The manufacturing sector experienced the most significant decline, with the 28% drop in transactions reflecting buyer concerns about supply chain stability and input cost volatility. The sector's vulnerability to imported raw materials and components made valuation and cash flow projections particularly challenging.
This decline followed a strong Q1 performance that saw manufacturing deal values surge 54%, suggesting buyers initially viewed tariff protection as beneficial before recognizing implementation complexities.
Restaurant Industry Challenges
Restaurant acquisitions fell 16% as operators grappled with elevated food costs and tariff impacts on imported ingredients. Despite a 3% increase in median sale prices, operational metrics deteriorated with cash flow declining 8% even as revenue grew 6%.
This disconnect between revenue growth and profitability reflects the industry's struggle to maintain margins while absorbing cost increases in a price-sensitive consumer environment.
Market Outlook and Strategic Implications
Near-Term Expectations
The market outlook suggests moderate, uneven growth as various factors influence deal activity:
Supportive factors:
Persistent buyer demand for quality assets
Motivated seller base facing operational pressures
Market conditions favoring buyers (40% of brokers report buyer advantage)
Constraining factors:
Tightened SBA lending standards reducing the qualified buyer pool
Extended sale timelines due to complex deal structures
Ongoing trade policy uncertainty is affecting sector-specific valuations
Strategic Recommendations
For Sellers:
Work closely with experienced business brokers to navigate new SBA requirements
Consider structuring seller notes as additional financing rather than equity substitution
Prepare comprehensive financial documentation to support valuations in an uncertain environment
Time market entry carefully to avoid sector-specific headwinds
For Buyers:
Obtain SBA pre-qualification early in the process
Focus on recession-resistant businesses with stable cash flows
Prepare for larger equity injections due to seller financing limitations
Consider opportunities in sectors experiencing temporary distress from policy changes
Conclusion
Q2 2025 demonstrated the business-for-sale market's resilience while highlighting new structural challenges. While overall transaction volume declined modestly, the shift toward recession-resistant assets and evolving buyer demographics suggest a maturing market adapting to policy changes and economic uncertainty.
Success in this environment will require sophisticated deal structuring, careful sector selection, and patient capital deployment. As SBA lending rules stabilize and trade policies clarify, the market should return to more predictable growth patterns, though likely at a more measured pace than the exceptional performance of 2024.
The current buyer-favorable environment presents opportunities for well-capitalized acquirers willing to navigate increased complexity, while sellers must adjust expectations and preparation to succeed in this more demanding landscape.