How the Fed’s Latest Rate Cut Could Reshape M&A in Late 2025
Infinity Capital Partners — October 2025
At Infinity Capital Partners, we work closely with business owners navigating the intersection of growth, liquidity, and legacy. The market environment around those decisions changes quickly — and right now, one of the biggest variables shaping that landscape is interest rates.
On September 17, 2025, the Federal Reserve executed a modest 25-basis-point rate cut, lowering the federal funds rate to a range of 4.00–4.25%. It was the Fed’s first step down after more than two years of restrictive policy — and policymakers signaled that another 50 bps of easing could arrive before year-end. The move reflects a cooling labor market, slowing inflation, and growing concern about keeping the expansion on track.
For business owners, the implications stretch far beyond lending costs. Rate cuts influence buyer appetite, valuation multiples, and the overall pace of mergers and acquisitions. Here’s how this shift may shape transaction activity heading into 2026.
1. Cheaper Debt, Better Deal Math
Lower interest rates reduce the cost of acquisition financing, improving deal economics for both strategic and private equity buyers. When leverage becomes less expensive, more transactions pencil out — and the pool of active buyers expands.
Businesses that once appeared “too expensive” in a higher-rate environment may now look more attractive. For owners contemplating an exit or recapitalization, renewed buyer competition often translates to better pricing and stronger negotiating leverage.
2. Valuations Could Expand — Selectively
Lower rates generally support higher business valuations by reducing the discount rate used in most models. But this uplift won’t be universal. Companies with stable margins, recurring revenue, and consistent growth are positioned to benefit most.
Buyers remain discerning about cyclicality and margin volatility, so firms with predictable cash flow — particularly in business services, niche manufacturing, and technology-enabled industries — may command higher multiples as the cost of capital falls.
3. Dormant Deals May Come Back to Life
Many transactions were paused over the past 18 months as financing costs surged and valuation expectations diverged. The recent cut, coupled with the likelihood of further easing, could bridge that gap.
For owners who engaged buyers earlier this year, it may be worth reopening the conversation. With cheaper debt and abundant private equity “dry powder,” deal activity could accelerate in the middle market as both strategic and financial buyers re-enter the field.
4. Who Benefits Most
Not every company or sector will feel the same tailwinds.
Middle-market companies are likely to benefit most, as modest leverage plays a critical role in deal feasibility.
Capital-intensive businesses — such as manufacturing, logistics, and industrial services — may see improved demand as the cost of financing capital expenditures falls.
High-quality, defensible firms with differentiated positions will continue to command premium valuations, particularly as buyers focus on stability amid economic uncertainty.
5. Risks to Keep in Mind
Even as the Fed shifts toward easing, uncertainty remains. Inflation is still above target, and policymakers have warned against cutting too aggressively. If growth softens too quickly, earnings pressure could offset valuation gains.
In addition, regulatory scrutiny, geopolitical uncertainty, and upcoming elections may all influence buyer timelines and confidence. Owners should expect buyers to remain disciplined in due diligence and valuation underwriting.
6. What Business Owners Should Do Now
The months ahead may present renewed opportunity — but preparation is key. Business owners should:
Reassess valuation expectations. Lower rates can expand buyer interest, but fundamentals still drive value.
Evaluate timing. If a sale or recapitalization is on the horizon within the next 12–24 months, now is the time to prepare.
Strengthen financial reporting. Buyers move faster when they have confidence in data quality and consistency.
Clarify personal and business goals. The right transaction is one that aligns structure, timing, and outcomes with your long-term objectives.
If the Fed follows through with another 50 bps of easing by year-end, 2026 could mark the beginning of a more active M&A cycle — particularly in the mid-market.
For owners, that means now is the time to prepare.
At Infinity Capital Partners, we help business owners evaluate market timing, understand the current value of their company, and create a clear roadmap toward a successful exit.
