Private Equity and M&A in a Low-Rate World

The recent interest rate cut by the Federal Reserve in September 2025 has sparked conversation around mergers and acquisitions (M&A) and whether it could bring about a wave of higher “deal flow.” What does this mean for investors?

In simple terms, deal flow is the stream of business proposals, investment opportunities, and transactions making their way to investors or companies looking to buy or invest in others. In the past few years, this flow has been unusually low, meaning fewer deals were being made - much of the market was waiting for better economic conditions and lower borrowing costs before making big moves. With interest rates falling, there’s hope that the pace and number of deals will pick up significantly.

Impact of Lower Borrowing Rates

Falling rates have led to clear improvements: borrowing money is cheaper, buyers can access more financing, and the value of companies is rising. These changes make it much easier for private equity firms - those that invest in companies directly and help them grow - to make new investments or sell old ones.

Thanks to this favorable rate environment, private equity activity could bring big benefits for investors who put their money into this alternative asset class. For example, Ernst & Young found that the value of big US transactions (over $100 million) jumped to nearly 60% in September, up from about 45% in August. Historically, rate cuts have meant investors can borrow money at lower rates, which helps them make larger, more profitable investments. As loan pricing comes down, the chances for buyers and sellers to agree on fair prices also goes up, creating more opportunity for deals.

Renewed Confidence

Optimism is spreading through the market—those who negotiate deals are excited about cheaper loans, making it easier to close deals that were previously stalled. This renewed confidence is most obvious in the larger side of the market, where both the total value and the number of deals has increased, passing $2 trillion spread over almost 18,000 deals according to Okeefe LLC.

Who Benefits Most?

Private equity firms stand to benefit most from this environment. With record levels of investable cash - around $1.2 trillion according to Bain and Company - these firms likely will start making more investments and creating opportunities to sell companies through initial public offerings (IPOs).

The IPO market, where companies make their stock available for public trading, has been almost at a standstill in recent years. But in 2024, IPO counts jumped 46% compared to the previous year, and so far in 2025, IPOs are up 87% from 2023’s low. Deal-making is also being boosted by creative investment strategies focused on specific sectors such as video gaming, energy, and AI, all of which have seen strong activity and new deals throughout this year. With improvements in technology and management tools, these companies are getting more efficient, which could keep deal flow trending upward.

With additional Fed rate cuts expected (markets anticipate two more cuts before the end of the year), lower rates supported by strong economic fundamentals create the perfect environment for more growth in private equity. While risks like inflation and the possibility of recession are still a concern, the right appetite for new deals and plenty of financial capacity give firms the chance to act quickly and be successful. Those ready to move are best positioned to take advantage of this promising landscape.

Summary

As a reminder, investing in private markets carries many unique risks and considerations. Investor qualifications, lockup periods, and minimum investments must all be considered carefully.

Before making any decision, you should consult with your financial advisor to see if you’re qualified to make this type of investment and to ensure that investing in the asset class aligns with your financial and investment goals. Every person’s situation and circumstance are different, so understanding your options is important when making this decision.

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