For years, L.A.’s private equity and finance scene has buzzed with pent-up capital.

Dealmakers have long awaited greener pastures: lower interest rates, a supportive regulatory environment and stable market conditions.

The year 2025 carried a great deal of promise of a rebound from a dragged-on slump in mergers and acquisitions. It only began to deliver in its last few months with back-to-back interest rate cuts in the fall, which served as a key catalyst for a year-end rush, said Brian Franco, founder and managing partner of L.A.-focused business sale and acquisition advisory firm MeritagePartners.

“Money really loosened up as we had some interest adjustments downward,” Franco said, “so that provoked investors and enabled them to be able to acquire companies that they had in the pipeline.”

Several blockbuster deals were penned in the City of Angels last year, including Netflix’s $82.7 billion offer to buy Warner Bros. Discovery and a Japanese-led investor consortium’s $7.4-billion acquisition of Century City-based aircraft leasing company Air Lease Corp.

Other blockbuster deals in 2025 included the sale of Hailey Bieber’s skincare brand, Beverly Hills-based Rhode, to E.l.f. Beauty for $1 billion in May, and Beverly Hills-based Butterfly Equity’s $500-million acquisition of Torrance-based Health-Ade Kombucha
in August.

‘Very busy deal year’

Home to a range of the highest-value industries – from media and entertainment to software – California has been somewhat in the center of the M&A markets rise. The state ranked first in the country last year for deal volume, with 1,388 transactions valued at a total of $173 billion, according to a PricewaterhouseCoopers analysis.

Sitting on historically high levels of “dry powder,” California’s private equity firms were eager to ramp up investments as interest rates fell. A JPMorganChase survey found just over half of the state’s business leaders are considering strategic partnerships and investments in 2026.

One L.A. firm capitalizing on a greater sense of confidence in the market is Century City-based Atar Capital, which saw a deal-heavy start to 2026. Within the first few weeks of the year, the firm acquired print industry add-on DataMaster Online and exited pipeline inspection company Frontier Integrity Solutions.

Atar Capital founder and chief executive Cyrus Nikou said he’s hopeful for a further onslaught of deal activity in the coming months.

“We’re very excited,” Nikou said. “We agree with the market sentiment that 2026 should be a very busy deal year.”

But as economic uncertainty lingers, certain headwinds might dampen that optimism, said David Musicant, managing director and west region executive at Citizens Bank.

Hurdles could include new tariffs, a rise in unemployment, heightened geopolitical risks, price discrepancies between buyers and sellers, or concern about U.S. consumer confidence softening.

The threat of a recession – which a JPMorganChase survey found over a third of California business leaders expect this year – likely won’t significantly impact transaction volume, Musicant said.

“It may, however, be impacting companies’ desire to invest capital in certain new areas as they think about making sure that their leverage profiles are appropriate,” he said.

A lopsided market

The floodgates may have opened — but it’s by-and-large the biggest, most capitalized corporates that are squeezing through.

Across the U.S., 74 megadeals valued at more than $5 billion closed last year, the most since 2021, according to PwC. On the flip side, middle-market deal count hit a decade-low, with 496 transactions between $100 million and $1 billion closing.

The market has seen a shift toward larger deals as major companies pursue scale and inorganic growth through consolidation and long-term investments in resilient assets, said Kevin Desai, PwC’s U.S. deals leader based in L.A.

“Companies that are very well-capitalized, companies that are very well-diversified geographically, from a customer perspective and from a product perspective, are pursuing change in a really big way,” Desai said. “Companies that are smaller, less well capitalized, very geographically concentrated, don’t have the same financial, operational flexibility.”

Data shows that M&A activity is seeing a sharp divergence between leaders in high-performing sectors and smaller firms in what analysts call a “K-shaped market.” The total number of deals globally has slipped in recent years, while deal volume has gained. The average deal size rose 47% year-over-year, according to JPMorganChase analysis.

Uneven economic recovery – from the Covid-19 pandemic and, more recently, pressures related to jump in tariffs and geopolitical uncertainty – drives this bifurcation, Desai said. Amid broader volatility, companies operating on slimmer margins and a less diverse supply chain haven’t been able to “control their own destiny” in the same way as industry giants, he said.

Nonetheless, the sales volume at Franco’s lower-middle-market advisory firm has been “robust,” he added.

“I don’t see any sort of slowdown. I don’t see any lack of confidence in that segment,” Franco said. “On the contrary, we’re seeing more investors entering into the market to acquire these types of low-to-mid-market businesses. There’s a lot of private equity sponsorship.”

The adviser said his firm has also seen deal momentum from small business investment companies, which invest in smaller operations using private capital and Small Business Administration-guaranteed debt.

As corporates consolidate, modestly sized L.A.-based companies like the ones in Franco’s purview still play a role – especially in key growth industries like architectural engineering and construction (AEC), aerospace, and defense, he said.

“Investors are looking to build critical mass in these companies in service discipline, product discipline, geographic reach,” Franco said. “L.A. County has a huge demand for housing, and that really drove a lot of activity in the [AEC] markets upward.”

Market factors aside, a hunger for the kind of scale that inorganic, technology-powered growth can bring will continue to fuel large-scale dealmaking in 2026, Desai said.

“There’s plenty of technology that needs to be deployed, and business models that need to be changed,” he said. “Obviously, the [artificial intelligence] factor that underlies all of this is really driving quite a bit of the M&A volume.”

AI frenzy fuels deals

As AI transforms consumer behavior and ripples through the economy, its impact on dealmaking is a “tale of two worlds,” Citizens Bank’s Musicant said.

There are the companies embedded in the world of AI’s data-center infrastructure, which see “tremendous opportunities, growth, valuations,” he said. And for businesses not primarily focused on AI, use of the technology is moving from a bonus to a necessity.

“There’s an expectation from buyers and operators that they will continue to see productivity enhancements as time moves on,” Musicant said. “That could certainly be built into models and valuations.”

Last year, roughly one-third of the 100 largest M&A transactions cited AI as part of their strategic rationale, PwC found.

As the technology is seen increasingly as a key growth engine, analysts have positioned the year 2026 as a turning point for investment in the field.

So far, AI capital has flowed toward “picks and shovels,” Desai said, like data centers and technology development. Companies with forward-looking AI strategies are increasingly sourcing out this infrastructural cost to outside investors, he said, freeing up their balance sheet to acquire native AI models.

“That innovation cycle will play off itself, and what will come of that is new ideas, new business models, which will inherently drive M&A into the future,” he said.

Before this shift sets in, Desai said AI products must show profitability and prove they won’t quickly become obsolete as industry-leading large language models like ChatGPT and Gemini advance.

“Models are competing with each other for our attention,” he said, “and that’s creating a dynamic that, if I’m a financial investor, I might want to be a little bit agnostic to which model I’m backing and really focus on the overall ecosystem that is AI.”

Companies with connections to AI end-markets are of “high interest” to investors at Atar Capital, Nikou said, but the firm has been cautious about banking on high-flyers with potentially inflated valuations.

“When there is so much hype, I tend to, instead of join the hype, analyze and study,” he said. “Since we don’t have institutional capital that has pressure to deploy, and we operate as a family office, I can take my time and be more patient to make the right strategic moves.”