The Private Equity and M&A Outlook Roundtable is produced by the LA Times Studios team in conjunction with GHJ; Holland & Knight LLP; and Polsinelli LLP.
After the many unprecedented operational changes that businesses in every sector had to make over the last few years, new factors continue to arise in terms of managing private equity or taking the plunge for a merger or acquisition. The unpredictable economic climate has also forced companies to make changes to the way they do business and to the way they approach their fiscal needs.
To address these issues and uncover the latest trends in the management of private equity and the merger and acquisition landscape, the LA Times Studios team turned to three uniquely knowledgeable professionals for their thoughts and insights about the most important “need to know” insights and to get their assessments regarding the various trends that they have been observing in general.
Q: What recent trends have been having the most impact on the private equity landscape in California?
Bryan S. Gadol, Partner and Head of California Corporate, M&A and Private Equity Practice, Holland & Knight LLP: Supply chain challenges coming out of the pandemic, interest rate increases and shifting tariff regulations are creating uncertainty around company operating and financial performance. This, in turn, greatly impacts the private equity landscape in California. Notably, higher borrowing costs have reduced the effectiveness of traditional leveraged buyouts, pushing firms toward more equity-heavy structures and operational value creation. Supply chain instability and tariff risks are forcing deeper due diligence, especially in manufacturing and trade-exposed sectors, while regulatory uncertainty is adding legal complexity and delaying deals. Overall, investors are more cautious, selective and risk-aware.
Q: How would you describe the private equity market’s changes over the last couple years?
David Sutton, Transaction Advisory Services Practice Leader; Private Equity Practice Leader, GHJ: Private equity assets under management have grown significantly – as capital available to deploy rises, there is an increased demand for deals and transactable companies. Because funds also need to prove out an investment beyond quarterly earnings statements, more exits have occurred that result in cash returns for investors ahead of an anticipated acquisition phase. Fundraising concurrently has slowed and valuations cooled, as interest rates increased and transactable companies became harder to find. Broader-strategy funds also capitalized on disruptions in L.A.-centric sectors like entertainment and logistics, while balancing against returns from more stable investments. However, funds focused on specific markets have executed add-ons or paused until attractive deals surfaced or market fundamentals shifted favorably. Looking forward, deals will rise as interest rates retreat and dry powder remains; although they will be subjected to increased diligence, more flexible deal structures and a longer timeframe to close.
Q: How are rising interest rates, inflation concerns and ongoing global uncertainty shaping deal structures in 2025?
Taylor K. Maun, Principal, Polsinelli LLP: Private equity sponsors and strategic buyers are relying more heavily on equity instead of debt financing. We are seeing an uptick in earnouts and using contingent consideration to bridge the gap between the cash that a buyer is willing to offer up front and a seller’s valuation goals and the short-term declines they may see in their businesses in this economic environment. Earnouts also help buyers mitigate the risk of rising costs and supply-chain uncertainty, as sellers navigate inflation and the possibility of tariffs disrupting their business. At the same time, concerns about sellers’ liquidity are causing buyers to seek larger escrows or holdbacks as well as longer survival periods for representations and warranties to ensure cash is available to cover potential post-closing claims.
Sutton: When interest rates rise, deal financing naturally becomes more conservative with lower debt availability. Broader economic uncertainty spurred by tariffs and the political landscape is also leading to deeper diligence efforts and, therefore, longer transaction timelines. To derisk these factors, funds are deploying a variety of tools to adjust deal structures, such as earn-outs, escrow arrangements, rollover equity and compensation deals, while knowing that valuations have to remain competitive to win deals.
Q: How has the availability of capital – both from traditional lenders and alternative financing sources – affected deal flow in the California market?
Gadol: The availability of capital from traditional and alternative financing sources – as well as investment commitments for private equity funds – are extremely high. Notwithstanding ease of capital availability, deal flow has been materially (and negatively) impacted by high interest rates and tariff fluctuations. With interest rates on the decline and increasing visibility into the tariff landscape, we would expect – and are starting to see – the deal market begin to accelerate dramatically.
Q: What are some key legal, tax or regulatory issues unique to California that companies should be aware of before entering into a deal?
Maun: California’s healthcare sector is governed by complex regulations that buyers should evaluate carefully when investing in the state, including recently enacted Senate Bill 351 and Assembly Bill 1415 (effective January 1, 2026). SB 351 codifies certain prohibitions on the corporate practice of medicine. Following existing medical board guidance, SB 351 restricts arrangements that interfere with practitioners’ professional judgment or that provide unlicensed entities with excessive control over medical practices, but it specifically applies to physician and dental groups under private equity control. SB 351 also strengthens California’s already employee-favorable limitations on non-compete agreements by prohibiting private equity-backed medical and dental practices from restricting practitioners from competing after their employment, though it preserves enforceability of non-competes in connection with the sale of business. Meanwhile, AB 1415 imposes regulatory notice requirements for material healthcare acquisitions in California by private equity groups, increasing regulatory scrutiny and deal timelines.
With a significant amount of dry powder on the sidelines, private equity firms are under pressure to deploy capital – especially after a prolonged slowdown. California, with its innovation-led sectors, is well-positioned to attract this capital.
— Bryan S. Gadol
Q: What best practices should business owners follow to prepare for a successful exit or acquisition?
Sutton: Being prepared for a sale ultimately means having advance diligence, commentary, projections, plans and a vision that show strong future performance and a value-added asset to potential buyers. Owners can start by demonstrating confidence in their leadership succession and business continuity by relying on strong management and operational teams to run the business and take a step back from directly overseeing the company. Further, businesses should aim to produce prompt, reliable data – whether financial, operational or otherwise – to showcase that the company is informed and organized. Buyers want to see that data and trends are being tracked and that business plans and financial forecasts are well documented. Revenue, and more importantly, margin expansion, also demonstrate an ability to execute on the identified levers to drive growth.
Gadol: Preparation is the key to a successful exit. Coordinating with tax advisors, wealth managers, investment bankers and M&A counsel is imperative to maximize the best outcome. One key point: Business owners should not underestimate the anxiety and stress, as well as the importance of the company’s financial performance, throughout the deal process.
Maun: Business owners planning an exit should start early to maximize value and streamline due diligence. Organize corporate records, fully executed contracts (including all amendments), licenses and permits, and financials so they are current and easily shareable. Review contract renewal and expiration dates and flag any change-of-control or assignment provisions that may require consent in a sale. Consider performing internal or external audits to identify and address compliance in key risk areas for your business, such as employment, regulatory or environmental issues, before going to market. Work with tax and legal advisors to optimize entity structure ahead of an exit. For example, entities taxed as S corporations should seek guidance to understand potential restructuring options to facilitate a sale to private equity or strategic buyers and enable a smoother, faster closing process.
Q: What are the top red flags or risks that investors and acquirers should look out for when evaluating companies in 2025?
Gadol: Investors should keep an eye out for a lack of preparation or commitment to the sale process from company leadership; a history of material non-compliance or litigation; material irregularities in financial accounting; significant customer concentration; and a lack of understanding around how the company may be impacted by AI in the future.
In today’s high-interest rate environment, buyers are more cautious, and sellers expecting pre-2023 multiples may resist price adjustments.
— Taylor K. Maun
Q: Are earn-outs and seller financing becoming more prevalent in today’s deal structures? What are the pros and cons?
Sutton: These structures are more prominent in an uncertain economy, and understanding the mechanics of how they work is complex. For earn-outs, consider whether they will be commensurate with enterprise values at closing and how to report add-on acquisitions’ earnings. For seller financing, think how repayments will be structured and the security afforded compared to other debt. The advantages are clear in that earn-outs reduce buyers’ downside risk, especially in deals where sellers will not be as involved post-close. Earn-outs also offer tax benefits. However, sellers fully exiting their operational roles may interpret earn-outs as consideration paid out of future operating earnings they could have realized without selling. As far as seller financing, it reduces cash proceeds at closing, which is helpful to buyers with cash constraints but less so for sellers. Depending on sellers’ risk appetite, it can potentially provide stable returns on capital while liquidating some of the sellers’ equity.
Maun: Earnouts are increasingly common, particularly in healthcare or other industries where valuation is subject to uncertainty in the current economic and political climate. They can be attractive to both buyers and sellers, allowing buyers to manage risks in financial forecasting and sellers to share in the post-closing upside if the business succeeds. Earnouts can also align interests during the post-closing period when sellers remain involved and motivated in the company’s success, though this can create tension between sellers’ performance incentives and buyers’ insistence on operational control. Seller financing is similarly on the rise, as high interest rates make third-party debt more costly. Seller notes can offer tax advantages and support higher valuations, but they can also expose sellers to greater risk, as seller notes are typically subordinate to the senior debt of the buyer and harder to enforce if the buyer defaults.
Gadol: Earn-outs and seller financing always increase when, like today, sellers’ pricing expectations do not sync with current market valuations. The pros are that they are useful in bridging the gap between a seller’s valuation desires and a buyer’s view of fair market value. On the other hand, earn-outs are among the most common provisions to be the subject of M&A disputes.
Q: How do you evaluate and manage risk in high-growth sectors such as technology or healthcare?
Maun: In healthcare transactions, it is critical to quickly assess the applicable regulatory regime and the target’s specific operations – including licenses, certifications and payor contracts – to identify change-of-ownership or transfer requirements that may impact closing timing and determine key risk areas to focus on in diligence, like billing, coding and compliance audits. We analyze audit histories, litigation trends and insurance coverage and evaluate whether representations and warranties insurance is appropriate. When issues are identified in due diligence, we can work to mitigate them by requiring sellers to take certain actions before closing; quantifying them to address the risks through escrows, indemnification and tail insurance; or preparing the buyer to address them post-closing.
Q: What are some typical reasons why deals fail in the current climate?
Sutton: In the current climate, surprises during diligence often cause deals to fail. For example, a seller may skip pre-sale diligence, and the buyer then discovers unexpected or undisclosed issues. Geopolitical and supply chain concerns also play a role in transactions – in one of the most complex economies we have witnessed, changes in the macro or micro landscape can make a deal less attractive to one side and cause it to fall through. Further, an inability to agree on structures once diligence is complete can lead to a parting of ways, as structures that are friendly to a seller may not provide buyers with the flexibility and tools they need. Cultural or strategic misalignments also can emerge before closing and trigger a party to walk away; particularly sellers that are seeking the right new owner for their creation, outside of deal economics.
Maun: Deals fail when they lose momentum due to negotiations over valuation gaps, financing challenges or diligence issues. In today’s high-interest rate environment, buyers are more cautious, and sellers expecting pre-2023 multiples may resist price adjustments. Regulatory or compliance issues uncovered during diligence – especially in California’s heavily regulated sectors – can also derail deals or require costly fixes. Extended timelines from regulatory approvals or third-party consents can cause transactions to slow pace (which can lead to seller fatigue, declines in the target business as the transaction becomes the main focus over operations, and additional time for buyers to identify diligence issues or seek better financing). In times of economic uncertainty, we also see buyers looking harder at the costs of integration (e.g., culture, systems, and leadership) that may lead them to walk away.
In one of the most complex economies we have witnessed, changes in the macro or micro landscape can make a deal less attractive to one side and cause it to fall through.
— David Sutton
Q: What are the most critical factors you consider when evaluating a potential M&A acquisition target?
Gadol: Critical factors include market size and positioning; the consistency and reliability of financial performance; management’s commitment to future strategic growth plans; and whether there is any material non-compliance with regulatory authorities and/or government entities. These factors are critical in M&A evaluations because they directly influence the target’s long-term value, risk profile and integration potential. A large and growing market with a strong competitive position suggests the target can scale and sustain profitability over time, enhancing return on investment. Consistent financial performance demonstrates operational stability and lowers the risk of post-acquisition surprises that could erode value. Alignment with the management team on future strategic growth plans is essential to ensure smooth integration and effective execution – especially if the acquirer plans to retain leadership.
Q: Looking ahead, what do you see as the biggest opportunities and challenges in the California M&A and private equity space over the next 12 to 18 months?
Maun: Healthcare practice roll-ups, investment in specialty medical service groups and acquisitions of value-based care platforms continue to present big opportunities in California for private equity investors, given the strong demand for scale and care-coordination models. In California’s complicated regulatory scheme (now bolstered by recently passed Senate Bill 351 and Assembly Bill 1415), these models present unique challenges for private equity investment but also give buyers a chance to price and structure deals to absorb timing and compliance risks. Buyers who are willing to plan for regulatory considerations with thoughtful structures and an understanding of the extended timelines can still identify and win opportunities for healthcare transactions in California.
Gadol: With interest rates falling, tariff regulation becoming clearer and the flush of available capital, we should see a substantial increase in deal volume. In this environment, however, seller valuation expectations must be reasonable. First, falling interest rates reduce the cost of capital, making leveraged buyouts and acquisition financing more attractive and feasible for both strategic and private equity buyers. Lower rates also support higher valuation multiples, which can help bridge the bid-ask spread that has stalled many deals. Second, as tariff regulations stabilize and global supply chain uncertainty is in the rearview mirror, it becomes easier to assess future performance and risk, restoring buyer confidence and enabling more accurate pricing and underwriting. Finally, with a significant amount of dry powder on the sidelines, private equity firms are under pressure to deploy capital – especially after a prolonged slowdown. California, with its innovation-led sectors, is well-positioned to attract this capital.
