Transaction Trends provides private equity sponsors and investors with middle-market transaction information and insights compiled by the BMO Sponsor Finance group—information that helps sponsors and investors better understand the current financing climate in the middle market.

In this edition of Transaction Trends, we review financial performance across our portfolio of 300 private equity backed borrowers. We evaluate 2024 performance to budget, assess year-over-year trends, and consider 2025 projections relative to 2024 to better understand where strength—and pressure—are showing up in today’s dynamic market.

Broadly speaking, BMO Sponsor Finance’s portfolio companies continue to demonstrate resilience in the face of persistent macroeconomic pressures. Despite the impact of higher-for-longer interest rates, wage inflation, tariff uncertainty, geopolitical volatility and continued softness in federal and consumer spending, many companies are outperforming expectations.

Looking back on 2024, 90% of borrowers projected revenue and EBITDA growth, with nearly 40% forecasting margin expansion. Sponsors had reason to be optimistic—benefiting from a more favorable macro backdrop than last year—and many delivered against those projections as 81% of borrowers showed revenue growth in 2024 with notable strength in Technology, Business Services, and Healthcare.

For those that missed EBITDA margin expectations, the shortfall was often driven by raw material cost dislocations or elevated operating expense investments aimed at driving future revenue growth or margin enhancement.

This positive momentum has largely carried into the first half of 2025. Sponsors have budgeted for continued gains in both revenue and EBITDA. More than half of borrowers are projecting further margin expansion this year.

In 2023, sponsors made investments into the professionalization and corporate overhead of their portfolio companies in the industrial sector, preparing them to support a larger revenue base in anticipation of a strong economic rebound in 2024 and 2025. However, much of that optimism has yet to materialize following a softer-than-expected 2024. The sector remains in mild contraction, with the Institute for Supply Management (ISM) Index hovering around 48, and many borrowers are bracing for uncertainty in demand.

This comes amid a dynamic tariff environment and downstream impacts on supply chains, pricing strategies, consumer demand, and inventory planning. Even borrowers without direct tariff exposure are keeping a close eye on second-order effects—from a weakening consumer base to shifting competitive dynamics as suppliers and producers adapt their strategies. Some companies have implemented modest price increases where justified, while others have accelerated inventory purchases in anticipation of a potential trade resolution—effectively trying to bridge to a trade deal. That said, the full impact of the evolving tariff landscape is likely to play out gradually over the coming months.

Supplier diversification efforts remain a clear trend. Many borrowers are advancing their strategies regardless of where final trade agreements land, suggesting long-term structural shifts in sourcing behavior.

In 2024, the post-COVID inventory build and subsequent destocking trend continued to weigh on revenue performance but began to ease as the year progressed. Barring any major tariff-driven disruptions, we expect this headwind to largely subside in 2025, however, tariffs could cause a significant supply chain disruption which should play out over the remainder of the year.

Despite employment remaining strong, consumer sentiment remains fragile due to inflation and higher borrowing costs. Household spending patterns have bifurcated, with high-income consumers continuing to spend while lower-income households exhibit greater caution.

After a weaker 2024, the FC&R portfolio is projected to show EBITDA growth well in excess of revenue growth suggesting strong margin expansion as the destocking difficulties of prior years fade and pricing power shifts back to producers.

Looking ahead, 2025 projections for FC&R point to a rebound as pricing actions taken in prior years flow through and the destocking cycle normalizes. Still, the sector remains closely tied to consumer confidence and global trade policy, both of which will need to be monitored.

Moderating labor cost inflation has led to margin stabilization for many healthcare providers through 2024, offering some relief after several years of persistent wage pressure. However, reimbursement, particularly from government payors, is emerging as a potential headwind heading into 2025 and beyond.

The recently passed “One Big Beautiful Bill” legislation included substantial cuts to federal healthcare funding, impacting both Medicaid and ACA exchange plans. While these cuts are framed as targeting fraud, waste, and abuse—and are expected to primarily affect able-bodied adults without reducing coverage for children or the disabled—the magnitude of reductions to state budgets could have broader, indirect consequences. The downstream impact will likely vary by state and should be assessed on a case-by-case basis.

Regulatory and funding uncertainty is creating near-term disruption in pharma services & life sciences. Changes in leadership and staffing at key regulatory agencies along with freezes and cuts to research funding, have affected biopharma companies and the clinical and commercial service providers  that they engage with.

The Software, Tech & Services sector has shown considerable strength in the last several years and it appears that 2025 will be no different.

As in 2023, revenue growth across this segment remained strong in 2024. However, recent federal spending reductions, especially in education, IT consulting, and healthcare marketing, have introduced pockets of uncertainty.

Services saw robust demand in both commercial and industrial services. Outsourced services continue to be favored by private equity given the sector’s resistance to tariffs and non-deferrable demand drivers.

Several companies faced margin compression tied to increased investment in operating expenses. It is yet to be seen if these investments will result in increased revenue growth.

While 2024 budgets reflected ambitious targets, portfolio companies largely delivered in line with expectations. Most sectors met or exceeded revenue projections, though persistent headwinds—supply chain disruptions, pricing pressures, demand volatility, and lingering destocking—continued to weigh on select areas.

Early optimism entering 2025, driven by expectations of a business-friendly Trump administration and rapid rate cuts, has since moderated. Inflationary tariff policies have constrained the Fed’s ability to ease interest rates, reinforcing a higher-for-longer rate environment and contributing to slower economic growth.

Macroeconomic uncertainty remains the defining theme as we enter the second half of 2025. The overriding issue is the impact of tariffs which remains unknown. In addition, geopolitical risk, and shifting consumer and public sector spending patterns continue to unfold. In response, many borrowers remain focused on supply chain diversification, cost discipline, and pricing agility.

Against this backdrop, the tone for the remainder of the year is best characterized as cautiously optimistic. Strategic investments in technology, talent, infrastructure, and facilities have improved operational resilience—but questions remain around how fully these efforts can offset ongoing macroeconomic pressures.

The FOMC kept policy rates unchanged on June 18 with the Fed Funds target range at 4.25% to 4.50% for the fourth consecutive meeting and signaled that policy could remain on hold for at least a little while longer. The median forecasts in the Summary of Economic Projections showed slower growth and faster inflation for this year and next. Specifically, for 2025 (Q4/Q4), real GDP growth was lowered by 0.3 ppts to 1.4% and both total and core PCE inflation were lifted by 0.3 ppts to 3.0% and 3.1%, respectively. For 2026, growth was decreased by 0.2 ppts to 1.6% and both total and core inflation were increased by 0.2 ppts to 2.4%.

In the ‘dot plot’, the median projection for this year stayed at two 25 bp rate cuts (to 3.75%-to 4.00%). Nine members now expect one or no cuts this year (one more member will change the median). For next year, the median call is now for only one cut vs. two before. The stagflation-skewed projection alterations are prompting more Fed policy caution. BMO Economics anticipates two quarter point cuts this year (September and December) and calendar quarter cuts continuing in 2026.

Borrower interest rate hedging activity increased in Q2 vs. Q1, particularly in April amid heightened volatility in the wake of tariff induced market uncertainty. Interest rates reached their lowest levels since last fall as market participants assessed rising economic recession risks and odds of more aggressive Fed rate cuts while SOFR rates remain around 4.30% with no imminent Fed policy changes. Sponsor backed portfolio companies preferred vanilla interest rate swaps and zero cost collars with 2-3 year tenors.

We continue to hear from many sponsors that there is a desire to implement more programmatic hedging strategies across platforms than in years past and encourage borrowers to have onboarding documentation in place to be able to execute a hedge opportunistically should there be an attractive market entry point.

BMO Sponsor Finance recently closed the LBO financing for TrussPoint in partnership with Soundcore Capital Partners.

Consistent with Soundcore’s strategy, TrussPoint was formed as a platform to roll up residential roofing companies across the U.S. and North America. BMO Sponsor Finance was selected to lead the financing due to its ability to provide tailored financing solutions across the full spectrum of a Financial Sponsor’s needs.

BMO’s relationship with Soundcore began in 2018 with a Fund Line. However, while this formally established the relationship with Soundcore, BMO had worked with the principals for over a decade through their prior firms. From there, the relationship has continued to expand with introductions and partnerships across treasury services, wealth management, and investment banking. In 2023, BMO Middle Market M&A was hired for the sale of PumpMan that resulted in a successful sale to Harrington.

In summary, BMO is supporting Soundcore across capital call financing, cash management, wealth solutions, and portfolio company M&A. The final piece was Sponsor Finance financing a portfolio company which aligned this year with the financing for TrussPoint.

This highlights that portfolio company financing is just one of many value-add products we offer to Financial Sponsors. It also underscores BMO’s deep commitment to the middle-market private equity community and the breadth of solutions we bring to our sponsor clients—setting us apart from the competition.

A snapshot of BMO's proprietary portfolio and transaction data.

As illustrated below, spreads on new transactions (inclusive of LBOs, refinances, add-ons) peaked in Q1’23 and have remained on a downward trajectory until the tariff announcements in April 2025, which caused much uncertainty in the market. In the weeks following “Liberation Day,” high quality, tariff insulated transactions did not see a change in pricing, while other transactions saw a 25–50 bps increase. Reflecting the resilience of the debt and equity markets, pricing quickly settled to prior levels by mid-May.

Historically, pricing in the middle market has had a lagging effect to the broadly syndicated market. With the prolific growth in private debt, this paradigm has shifted with pricing driven by the funds private credit lenders have available to invest. With M&A activity muted and lenders  sitting on a stockpile of dry powder coupled with pressure from investors to deploy capital, pricing has remained stable despite a more risky macroeconomic backdrop.

Adding further pressure to middle market pricing, there has been a “dip down” effect as large market private credit lenders seek to deploy their substantial dry powder. Until there is an uptick in supply, we expect these dynamics to remain intact.

New LBO activity in the first half of 2025 has remained muted relative to expectations following lower transaction volumes in 2024. Broader macroeconomic uncertainty regarding tariffs, federal spending cuts, and lower consumer sentiment resulted in a number of processes being pulled or paused. Evidencing this, in Q2’25 the broadly syndicated market went 15 days without a launch, the longest stretch since COVID.

While there have been pockets of higher auction activity for certain sectors (Technology, Healthcare, Outsourced Services), deal quality from both the debt and equity perspectives continues to be mixed overall. Given the limited number of quality assets coupled with firms seeking to deploy dry powder, both valuation and leverage multiples have remained high for premium assets.

Despite the uncertainty, deal activity is expected to be driven by the pending maturity wall across the 2021 vintage of transactions. While the churn of the BMO portfolio has been historically low at 10% over the last 12 months, BMO completed more facility extensions in 2024 and 2025 versus historical levels. Over the next 18 months, 24% of our portfolio has an upcoming maturity. Deal activity over the near term will eventually be forced to increase to address this pending issue.

Single tranche solutions continue to be the preferred structure in the current environment due to ease of execution and increased lender appetite. Sole lender deals are also common, in particular, for more time sensitive transactions and credits with less than $15 million of EBITDA. Of BMO SF’s closed new platforms during YTD 2025, 83% have been single tranche versus a senior/junior structure. As many of the platforms below $15 million of EBITDA are highly acquisitive roll-up platforms, sponsors are electing to include multiple financing partners to support growth, despite many lenders having hold capabilities above $100 million.

All-senior structures continue to abide by at least 50% minimum equity in the capital structure. Furthermore, lender appetite for delayed draw term loans has returned after a brief break post Liberation Day and related pricing uncertainty, particularly for businesses that have demonstrated quick usage of the facilities.

In a continuation of 2024, BMO has seen the market remain aggressive in terms of the depth of leverage, particularly on high quality credit profiles. While increased leverage was more pronounced on larger transactions, BMO has increasingly seen deeper leverage levels on businesses with less than $15 million of EBITDA during 1H’25, providing another datapoint that lender appetite remains high.

For transactions being tracked by BMO and ultimately trade, BMO continues to see strong EV valuations that are in-line with multiples paid 24–36 months ago.

Consistency, speed and surety of close are crucial when it comes to serving the needs of middle-market private equity firms. Whether it’s providing capital for mergers and acquisitions, leveraged buyouts, recapitalizations or growth capital, BMO Sponsor Finance works with you from initial review to ongoing portfolio management for reliable execution and follow-through with no handoffs.