SETTING THE STAGE FOR DEALMAKING
This year ushers in a new dealmaking landscape after mixed activity between corporate acquirers and private equity firms in 2024. CEOs are cautious about M&A plans in 2025, looking for signs of certainty amidst the current market volatility. On the private equity front, financial sponsors continue to have ample dry powder to deploy. Several market dynamics, including lower interest rates, supportive financing conditions between a private credit surplus and traditional bank loans, and longer-than-average hold times for PE portfolio companies, will likely drive an increase in private equity activity this year. The new administration’s promises of deregulation and relaxed antitrust policies are encouraging, but concerns about tariffs, volatile economic policies, and geopolitical risks may dampen CEO confidence as well as M&A activity.
U.S. M&A volumes increased in 2024
The U.S. economy was strong heading into 2025
Moderating inflation with CPI Index at ~3%, down from recent peak (9%) in June ’22
Financing markets are supportive
Public debt markets are open, while private credit spreads are narrowing
U.S. equity markets at all-time highs: S&P and NASDAQ increased 81%+ and 112%+ respectively since December 2019 (1)
Corporate acquirers considering M&A options
While CEO confidence was high at the start of 2025, corporates are sitting on the sidelines, waiting out the market volatility. Ample cash balances and strong earnings performance provide CEOs funding for potential M&A activity in the year ahead.
Policy changes by the new administration may boost dealmaking:
- Prior administration had 50+ enforcement actions since 2022 (record spanning decades)
- Focus on deregulation may benefit multiple sectors
- Potential tax cuts may increase company earnings, leading to M&A activity
Sponsor M&A Activity is expected to return
37% increase in “dry powder” for sponsors since 2018, ready to deploy for acquisitions (2)
28k unsold companies held by U.S. sponsors; the highest total ever (3)
5.9 years median hold times for portfolio companies held by U.S. sponsors; above the 5- year typical time horizon
“Financial sponsors have mostly been on the sidelines, sitting on record amounts of dry powder as they waited out a market challenged by unfavorable bid-ask spreads and prohibitive financing costs. We expect the tide to turn in 2025, as aging portfolios and pressure from LPs push PE firms to re-enter the market.”
Jeff Jacobs, “2025 M&A Outlook: Economy and Dealflow,” Mergermarket, Dec 27, 2024 (Demitri Diakantoni) Read more.
Geopolitical tensions may impact M&A
Shift in U.S. regulatory environment potential to facilitate M&A activity
Continued protectionism will tamper cross-border M&A
Increased scrutiny is expected for cross-border deals going into the U.S.
Heightened Oversight
President Trump aims to control U.S. investment in certain Chinese tech sectors.
Increased Review Times
Long-form notices increase to prevent delays as a result of fewer favorable outcomes from declaration filings.
Private Equity Scrutiny
Intensified focus on Non-U.S. LPs and their holdings.
Enhanced Export Controls
Large penalties and newly created organizations assist in monitoring investments surrounding “autocratic jurisdictions.”
Please contact our team for more details on our 2025 M&A outlook. Read our sector insights for more M&A market trends.
Sources >>
1. Source: Capital IQ as of January 1, 2025.
2. Source: FactSet; multiples exclude transactions with multiples >35.0x or <2.0x. Capital IQ as of January 15, 2025; reflects vintage year from 2004 to 2024.
3. Source: Pitchbook, Preqin, “Private Equity Outlook 2024: The Liquidity Imperative”, Bain & Co, 2024.