Empirical’s three managing partners, Bill Morrow, Chris Lee, and Jason Fisher, share their thoughts on the outlook for 2025.
As we begin the new year, we wanted to take a moment to share what we’re seeing in the middle market. The landscape for 2025 presents a complex mix of challenges and opportunities as markets evolve. Several key themes are taking shape and driving decision-making with our clients, including the below.
Geopolitical Transitions
2025 marks a pivotal year in global relations. Trade relationships are being redefined as countries balance national interests with international cooperation. The ongoing realignment of global alliances affects everything from supply chains to technology transfer agreements. Regional power dynamics continue shifting, particularly in Asia-Pacific and emerging markets.
Labor Market Dynamics
The manufacturing and technology sectors face persistent skilled labor shortages. While automation helps bridge some gaps, specialized roles remain difficult to fill. Companies are responding with enhanced training programs, competitive compensation packages and additional perks that attract and retain the talent they need. The shortage particularly impacts the manufacturing, life sciences, and technology sectors.
Economic Environment
Interest rates remain elevated as central banks maintain their stance against inflation. This environment creates challenging conditions for working capital management and investment decisions. Companies face higher costs for inventory financing and capital expenditures, pushing them to optimize cash management strategies.
Supply Chain Evolution
The trend toward reshoring and nearshoring continues to gain momentum. Companies prioritize supply chain resilience over pure cost efficiency. Mexico, Eastern Europe, and even Central America are emerging as key beneficiaries of this shift. While this transition increases operating costs, it provides better risk management and faster market response capabilities.
Operational Excellence Focus
After years of growth through acquisitions, companies are turning inward to optimize operations. This includes:
– Documenting current processes and determining opportunities for improvement
– Streamlining redundant processes from previous mergers
– Implementing advanced analytics for efficiency gains
– Modernizing technology infrastructure
– Reducing operational waste and improving resource allocation
M&A Activity Acceleration
Private equity firms, family offices, and strategic buyers are actively seeking deals, supported by significant available capital. Valuations are becoming more attractive as market conditions stabilize. Key sectors seeing increased activity include technology, manufacturing, and industrial services. The focus is shifting toward quality assets with strong market positions and operational efficiency potential.
Strategic Planning Emphasis
Leading mid-market organizations are strengthening their scenario-planning capabilities. This involves:
– Developing multiple strategic options for different market conditions
– Building early warning systems for market changes
– Creating flexible operational models
– Maintaining strong balance sheets for quick opportunity capture
The business environment in 2025 requires organizations to be both strategic and nimble. Success depends on balancing operational efficiency with strategic flexibility while maintaining strong financial discipline. Companies that can effectively navigate these dynamics while remaining alert to emerging opportunities will be best positioned for sustainable growth.
Those organizations investing in operational excellence while maintaining strategic agility are likely to emerge as market leaders. The combination of external pressures and internal optimization creates both challenges and opportunities for well-prepared businesses to strengthen their competitive positions.
The year ahead demands a careful balance between cost management and strategic investment. Organizations that can effectively optimize their current operations while maintaining readiness for market opportunities will be best positioned for success in this transitional period.
The Empirical team would love to talk to you about your predictions for the upcoming year and is available to discuss your business challenges and opportunities for 2025. Be sure to connect with us: hello@thinkempirical.com; (610) 994-1139.
