Viva La Vida

First, forgive me (!) in advance for Coldplay references in the midst of the cheating scandal that is everywhere right now—even my young kids know about it. It's low hanging fruit, but it is undeniable, in a world that has become bipolar politically, that this story is one thing that has brought society together, albeit in a strange and comical and sad way.

More Red Than Yellow

Remember when making deals was as smooth as a Chris Martin falsetto (again, forgive me! I’m shameless)? It’s been a minute. We were still working through COVID.

Global dealmaking has been in rough shape, with private equity dealmaking suffering its worst decline since the financial crisis before finally rebounding 37% in 2024. It's been a brutal few years of buyer-seller valuation gaps, regulatory headaches, and everyone basically sitting on their hands waiting for someone else to blink first. The M&A, IPO, and equity capital markets felt as awkward as getting caught on the Kiss Cam at a Coldplay concert. Private credit feels like one of the few outlets for capital, notwithstanding Silicon Valley's push for pure-play AI opportunities. And when it comes to private credit, there are signs that it is overheating.

Sparks

Last week, Blackstone's Jon Gray—basically the Chris Martin of private equity—dropped some serious optimism on analysts. "We believe the dealmaking pause is behind us," Gray declared, pointing to "the largest forward IPO pipeline since 2021".

This isn't just one guy being bullish. Wall Street's biggest bank CEOs echoed similar sentiments, with corporate clients getting comfortable with uncertainty and moving ahead with merger plans. When the smart money starts talking like this, it's usually because they're seeing something the rest of us missed.

The fundamentals are lining up too: lower short-term interest rates, less uncertainty, continued economic growth, AI acceleration, and a pent-up desire to transact. It's like the perfect storm, but in a good way for once.

A Sky Full of Stars

This is where it gets really interesting for strategic buyers and private equity firms looking beyond the obvious targets. Nearly 75% of Baby Boomer-owned businesses are profitable, making them attractive acquisition targets.

The supply-demand dynamics are brutal for sellers but fantastic for buyers. The supply of businesses for sale is outpacing demand, leading to favorable valuations, especially for companies heavily reliant on their founders. In 2024, the average EBITDA multiple for US private transactions was 4.8, with many deals falling below that baseline due to market saturation.

And here's the kicker—more than 58% of small business owners have no transition or succession plan. These owners are going to hit 70, realize they need an exit strategy, and suddenly there's going to be a flood of quality businesses hitting the market.

Unlike that unfortunate Astronomer CEO who needed an emergency exit strategy after his Kiss Cam moment went viral, most of these business owners actually want to plan their golden parachute properly.

Speed of Sound

But here's where it gets interesting for current SMB owners who aren't quite ready to exit yet. While everyone's focused on the baby boomer selloff, there's a massive opportunity for small and medium businesses to position themselves for a valuation rebound in the coming years.

The secret weapon? AI technology to improve operational efficiencies and boost the bottom line. Every dollar of increased EBITDA or cash flow has a 4-20x multiplier effect on exit valuation, depending on the industry. That means a $100,000 annual improvement in operational efficiency could translate to $400,000 to $2 million in additional exit value.

Smart SMB owners are already implementing AI tools for inventory management, customer service automation, predictive maintenance, and financial forecasting. These aren't just cost-cutting measures—they're strategic investments in future valuation. When the dealmaking market fully recovers and multiples expand again, the businesses that have optimized their operations will command premium valuations.

The timing couldn't be better. While baby boomers flood the market with traditional businesses, forward-thinking owners can differentiate themselves by demonstrating AI-enhanced operations and predictable, scalable cash flows.

Parachutes

The equity capital and M&A markets are certainly exhibiting signs of recovery. But beyond the Blackstone and Goldman headlines grabbing attention, there's something even more significant happening: an acceleration of SMB transactions driven by unstoppable demographic trends.

Here's the reality: most of those SMB businesses hitting the market aren't prepared for maximizing their valuation. They're running on legacy systems, haven't optimized operations, and are leaving serious money on the table.

The time is now for business owners to think ahead and prepare for eventual exit. While everyone else is scrambling to catch up with the recovery, smart sellers are already positioning themselves for premium valuations. Whether it's implementing AI to boost operational efficiency, cleaning up financial reporting, or building scalable systems that don't depend on the founder, the businesses that prepare now will command the highest multiples when they do decide to exit.

The dealmaking recovery isn't just coming back—it's evolving. And the sellers who recognize this shift and act accordingly will be the ones writing their own golden parachute stories.