M&A Today: Disciplined Dealmaking in an Uncertain World

In this episode of Solomon Connects, Solomon Partners’ Head of M&A and COO of Investment Banking Jeff Jacobs joins M&A Director Chris Moynihan to break down the key forces shaping M&A activity following a strong but complex first quarter. They discuss the return of large-cap strategic buyers, persistent valuation gaps, and rising activism, while unpacking how boards and management teams should approach dealmaking in Q2 and beyond as macro volatility persists.

Transcript

Jeff Jacobs (00:02):

Welcome to Solomon Connects. This is our M&A monthly podcast where we break down the key market forces shaping deal activity. I’m Jeff Jacobs, head of M&A and COO of investment banking at Solomon Partners.

Chris Moynihan (00:13):

And I’m Chris Moynihan, a director in the M&A group. We’ve just wrapped up an eventful Q1, and for deal makers, it’s been an interesting start to the year. On the one hand, M&A volumes increased 40% year over year, but at the same time, recent geopolitical events and ongoing high interest rates have tempered some of the dealmaking expectations that we had at the beginning of the year. So, we wanted to explore these themes today and dig in a bit further about what we expect for next quarter. Jeff, what’s your take on this?

Jeff Jacobs (00:44):

I agree, Chris. Q1 got off to a strong start. You mentioned the 40% year-over-year growth, and frankly, that was after a strong Q4 as well. These have been two of the most active quarters since 2021 with over one and a half trillion of M&A volume between them. Strategic buyers were really the major driver that we saw, particularly larger well-capitalized companies that were pursuing targeted transactions. Even with continued macro complexity, dealmaking remained active and fairly deliberate. And a lot of it was in sector consolidation. We saw Public Storage acquire National Storage for 10 and a half billion. Strategics are really using scale, both as a defensive and an offensive strategy.

Chris Moynihan (01:26):

Beyond the headline volume figures, what stood out to you about the types of M&A that we saw this quarter?

Jeff Jacobs (01:32):

The defining theme was really discipline. Buyers were active, but they were selective. Volumes seemed to be driven by the larger deals, many with strategic buyers who had strong convictions about how they wanted to position themselves within the competitive landscape. Deal count growth was steady, but it wasn’t super-aggressive and that points to thoughtful M&A rather than a lot of speculative behavior.

Chris Moynihan (01:58):

Jeff, I know you're recently down in New Orleans for the fabled Tulane M&A conference, which is a big gathering of dealmakers across industries. What was the sentiment among the participants there?

Jeff Jacobs (02:08):

The sentiment down to Tulane was cautiously constructive, I would say. People acknowledged the uncertainty, but they saw real opportunity in the market. A few things stood out to me. First, the ongoing valuation gaps between buyers and sellers. Sellers continue to anchor to intrinsic value and some of the long-term fundamentals, while buyers remain focused much more on current market performance, on financing costs, on near-term macro risk, and that’s a disconnect that continues to complicate some of the pricing discussions. Interestingly, we are really at peak levels of market caps today that are largely based on what we would call terminal valuations; meaning the expectations are disproportionately anchored to future growth rather than some of these near-term cash flows. We’re actually at the highest level we’ve seen since the dot-com era. So it’s no wonder there’s a value gap between sellers who want credit for these lofty future expectations and buyers who are more skeptical and much more focused on near-term performance.

(03:08):

A key difference today though is that many of these companies are, in fact, generating significant cashflow. So, the debate is less about a particular business model and whether it works or not and more about the sustainability of the business model, particularly against the backdrop of a world that is rapidly being reshaped by AI. Another theme covered was activism. Campaigns are up roughly 13% so far this year. Market volatility inevitably creates opportunity for more hostile activity. Interestingly, with proxy advisory firms losing their sway, more boards feel empowered to reintroduce some of the structural defenses that they’ve had in the past, be it a poison pill or classified boards, really to protect themselves against unwelcome interlopers who increasingly are leveraging digital media and other platforms to make their case directly to shareholders.

Chris Moynihan (03:59):

So, you talked about some of  those macro themes that we’re seeing – AI, activism – but when you break down the quarter by sector, where do you see the most consistent activity, and what does that tell us about buyer priorities right now?

Jeff Jacobs (04:11):

Technology has seen the most consistent momentum these days. A lot of that was AI infrastructure or enabling technology. Healthcare has also been very active. Overall, acquirers favorite sectors with structural growth and fairly resilient demand. More cyclical or discretionary areas were comparatively quieter last quarter.

Chris Moynihan (04:33):

It’s not lost to me that a lot of the transactions announced in Q1 were some of these mega deals over $5 billion of enterprise value. Looking at the middle market, how did activity trend there in Q1, and what does that tell us about the current operating environment for those businesses?

Jeff Jacobs (04:48):

Middle-market activity improved, but it improved modestly year over year, [and] remains a fairly selective environment. Buyers are focused on fundamentals, on cashflow durability, on earnings visibility. Strong assets continue to find liquidity, but the ability to underwrite matters. Sponsor activity has really been more measured, reflecting ongoing macro and financing uncertainty. And as a result, activity is skewing toward proprietary deals, sector specialists, founder-led situations, things where sponsors can drive value creation directly rather than compete in broad auctions. Valuation, structure, and certainty of execution remain tightly scrutinized, and preparation and positioning are increasingly critical.

Chris Moynihan (05:32):

You mentioned how sponsors are looking for opportunities where they can drive value, but it seems that they’ve had quite a slow return to market.

Jeff Jacobs (05:39):

I agree. Middle-market sponsors are frequently facing a valuation gap that they’re really struggling to overcome. Many PE assets are still marked at prices that may not be appropriate or even achievable in the current environment. And that really tends to slow exit activity, since sponsors are reluctant to reset those expectations around those assets. It’s not an easy problem to solve and it’s compounded by a rate environment that has been slow to come down. They’re always imperfections in valuing large amounts of illiquid assets, but until sponsors can better align the current marks on their portfolio companies to market values, I think there’s going to continue to be a disconnect between buyers and sellers.

Chris Moynihan (06:21):

Our listeners are probably familiar with the many reasons why, but market volatility has recently begun to pick up. How’s that impacting M&A volumes?

Jeff Jacobs (06:30):

We certainly saw significant volatility in March. Geopolitical developments, including the Iran conflict, added lots of uncertainty, energy prices have pushed materially higher and all of that fed into broader macro and market volatility. Interestingly, at least so far, this hasn’t derailed M&A activity, but it has influenced timing and it has influenced underwriting assumptions. Boards are clearly more focused on downside protection and flexibility than they have been in the past.

Chris Moynihan (06:57):

And how do these conditions affect strategic buyers versus, let’s say, a financial buyer?

Jeff Jacobs (07:03):

I would say strategics are generally able to remain more active, supported by strong balance sheets and longer time horizons. That’s allowed them to look through some of the near-term volatility and stay engaged on priority assets. Sponsors, on the other hand, became more selective as uncertainty increased and as underwriting standards tightened. That said, financing remains available, particularly for higher-quality credits across both public debt and private credit markets. So, the issue is not access to capital, but a bit of greater caution around timing and risk. Sponsors gravitated toward situations with clear controllable value creation. Overall, buyers continue to transact, but were more deliberate about when to pull the trigger.

Chris Moynihan (07:49):

And given how all this has played out in Q1, how are boards and management teams thinking about M&A strategy as we move further into 2026 for the rest of the year?

Jeff Jacobs (08:00):

Boards are really approaching M&A with a more deliberate, more balanced mindset. Strategic discussions are centered on how M&A can support long-term positioning amid an environment that remains uneven. Transaction activity reflects a range of use cases from reinforcing existing platforms to adding technical capabilities or overall scale. I think there’s increased emphasis these days on ensuring that deals can get done and that the merger thesis holds up and remains resilient across a range of macro outcomes.

Chris Moynihan (08:30):

And so looking into the near term for the second quarter, where should dealmakers be focused?

Jeff Jacobs (08:35):

Everyone is monitoring macro developments and geopolitical developments. That will remain critical. Energy prices and rate expectations will continue to influence sentiment. At the same time, appetite for high-quality M&A is clearly there. Q1 demonstrated that dealmaking continues even in uncertain conditions, but success, at least in this market, will hinge on buyers continuing to remain discipline.

Chris Moynihan (08:57):

We’ll have to see if that discipline continues. Thanks, Jeff. We appreciate your insights, as always, and thank you to everyone for tuning in. Be sure to check out solomonpartners.com for our Q1 26 M&A outlook, and we’ll be back next month with another M&A update.