Navigating Valuation Friction in 2025: Strategies for Buyers Amid Market Uncertainties

The start of 2025 has brought a new challenge for buyers in the market: valuation friction. Inflation, rising interest rates, and ongoing trade uncertainties have made it harder to agree on prices. Buyers hesitate, sellers hold firm, and deals slow down. In this environment, buyers must adjust their approach to valuations and risk management to succeed. This post explores practical strategies to navigate these challenges and make informed acquisition decisions.

Financial analyst reviewing valuation charts, focusing on market trends

Understanding Valuation Friction and Market Risks

Valuation friction happens when buyers and sellers struggle to agree on a company’s worth. In 2025, this friction is driven by several factors:

• Inflation increases costs and reduces profit margins, making future earnings less predictable.

• Interest rates have risen, increasing borrowing costs and reducing buyers’ purchasing power.

• Trade uncertainties create risks around supply chains and market access, affecting company outlooks.

  
  

Buyers must adopt conservative valuations that reflect these risks. For example, instead of assuming steady growth, they should model scenarios where sales drop by 20% or costs rise unexpectedly. This stress-testing helps avoid overpaying and prepares buyers for downturns.

Industry Trends and Valuation Multiples

Not all sectors face the same challenges. Some industries remain attractive despite the overall slowdown:

• Technology and SaaS deals continue to attract buyers due to strong growth potential and recurring revenue models.

• Capital-intensive sectors like energy face headwinds, especially if commodity prices weaken.

  
  

Knowing the right multiples for each sector is crucial. High-growth segments may command premium valuations, while others require discounts to reflect risk. For example, a SaaS company with steady subscription revenue might trade at 8-10 times EBITDA, while an energy project might only justify 4-5 times due to price volatility.

Managing Financial Structure Risk

Securing financing before making an offer is vital in 2025’s competitive market. Buyers who have committed funding stand out and can close deals faster. Consider these points:

• Lock in fixed-rate financing to protect against future interest rate hikes.

• Be aware of currency exposure if loans or revenues involve multiple currencies.

• Prepare for higher borrowing costs by adjusting deal structures or increasing equity contributions.

  
  

Having a clear financial plan reduces uncertainty and strengthens negotiating positions.

Choosing Between Asset and Share Purchases

One of the most important decisions in any acquisition is whether to buy assets or shares. This choice affects risk, tax treatment, and operational complexity.

Asset Purchase

• You acquire selected assets and assume only chosen liabilities.

• This allows avoiding unwanted risks like old equipment or costly leases.

• Provides a fresh tax cost base, enabling more depreciation deductions.

• Requires transferring permits, contracts, and licenses, which can be complex.

• Some liabilities, such as environmental claims or worker issues, might still follow the assets.

  
  

Share Purchase

• You buy the entire company, including all contracts, tax accounts, and debts.

• Simpler operationally since contracts and licenses remain intact.

• You inherit all existing risks and liabilities.

• Often preferred when continuity of business operations is critical.

  
  

Buyers should weigh these factors carefully and consult legal and tax advisors to choose the best structure for their deal.

Practical Tips for Buyers in 2025

• Stress-test financial models with downside scenarios to understand risk exposure.

• Monitor industry trends closely to identify sectors with resilient valuations.

• Secure financing early and consider fixed-rate loans to manage interest rate risk.

• Understand valuation multiples specific to the target’s industry and growth profile.

• Decide on asset vs. share purchase based on risk tolerance and operational needs.

• Plan for legal complexities in asset transfers, including permits and contracts.

  
  

These steps help buyers navigate the current market and avoid costly mistakes.

Final Thoughts

Valuation friction in 2025 reflects a market adjusting to new economic realities. Buyers who approach valuations conservatively, understand sector-specific risks, and secure financing upfront will be better positioned to close deals successfully. Choosing the right legal structure for acquisitions further reduces risk and complexity. By applying these strategies, buyers can move confidently through uncertain times and find value even in a challenging market.