Equipment-as-a-Service (EaaS) companies are entering 2025 with cautious optimism, bolstered by softening interest rates and a surge in infrastructure spending, according to the latest quarterly report from investment bank Houlihan Lokey.

The firm’s Q4 2024 EaaS Market Update notes that while merger and acquisition (M&A) activity dipped to 20 deals in the fourth quarter—down from 28 in the same period last year—conditions are ripe for renewed momentum in the months ahead.

“Easing monetary policy and improved financing conditions are setting the stage for increased deal-making,” the report states, highlighting that both strategic and financial buyers remain active. Companies are increasingly targeting geographic expansion and service diversification, as seen in Sunbelt Rentals’ acquisition of the U.K.-based JLL Group to expand in the live events and entertainment sector.

The slowdown in Q4 deal volume was attributed in part to year-end timing and macroeconomic uncertainty. However, the Federal Reserve’s December rate cut, which moved interest rates closer to historical norms, has already improved business investment sentiment. Inflation also eased to 2.1% by December, further supporting the positive outlook.

Infrastructure spending—fueled by federal programs and population growth—has played a key role in driving demand for EaaS providers. The Dodge Momentum Index, which tracks nonresidential construction planning, rose 19% in 2024, with warehouse and data center activity leading the charge.

North American EaaS companies outperformed their European counterparts, with traditional rental services rising 20.5% year-over-year. Specialty rental services, however, saw a 10.6% decline, partly due to stalled merger activity. Notable performances came from industry leaders like United Rentals and Herc Holdings, both of which posted record revenues and expanded their fleets to meet rising demand from large-scale projects.

The Houlihan Lokey EaaS Index, which tracks a diverse set of 21 companies, ended 2024 up 13.4%—trailing the S&P 500’s 24% return but ahead of Europe’s stagnant STOXX 600 index.

Looking ahead, Houlihan Lokey’s analysts say continued interest rate relief and stable macroeconomic conditions could fuel a fresh wave of acquisitions in the EaaS space, with strategic players likely to lead the charge in 2025.