M&A in 2025: Anticipating Activity Will Accelerate As New Administration Settles In

M&A in 2025: Anticipating Activity Will Accelerate As New Administration Settles In

By CEO Marc Cooper

Dealmakers entered 2025 with a sense of optimism. With stabilized interest rates, favorable macroeconomic trends, and the election year behind us, many financial professionals expect strong M&A markets to return. However, setting realistic expectations is crucial.

In the near term, uncertainty surrounding economic and trade policies under the second Trump administration remains a key factor shaping sentiment. Senior finance executives are still assessing the landscape, and January’s muted year-on-year deal flow reflects this dynamic.

Even beyond political uncertainty, a broad-based M&A boom appears unlikely. Instead, the increase in successful transactions is expected to be more selective—where top-tier assets command premium valuations, and structured deals play a critical role in generating liquidity.

Some investment banks, particularly boutique firms including Solomon, are building very large deal backlogs and if windows do open up, there may be significant activity in these periods.

Several structural factors are keeping deal flow from roaring back. Chief among them is the overhang of high-multiple investments made in a different interest rate environment, the evolving role of private equity, and the increasing reliance on structured transactions.

The private equity industry, in particular, is under mounting pressure to return cash to investors. Distributions to paid-in capital (DPI)—a key metric measuring how much money funds return relative to what they raised—are at historically low levels. That is not sustainable.

Firms need liquidity, yet they can’t afford to unload assets below their marked values without jeopardizing their ability to raise future capital. That’s why most of the recent sales involve top-tier companies that still command premium valuations.

Since not every portfolio company is an A+ asset, many firms are holding on, reluctant to take a valuation hit. In some cases, fund managers believe in the long-term upside of their holdings. Others, however, are simply in survival mode—unwilling to acknowledge that certain valuations may never recover. The longer this impasse continues, the more pressure builds. But a major wave of selling won’t happen until the private equity industry moves past this collective waiting game.

With outright sales happening selectively, structured transactions have stepped in to bridge the liquidity gap. Rather than full exits, funds are increasingly leveraging alternative strategies to generate cash flow. Structured equity, particularly preferred shares, has gained traction, offering fixed returns with reduced downside risk.

Dividend recapitalizations allow firms to tap into less costly private credit, extracting cash without selling the underlying asset. Continuation funds, where firms roll assets into a new vehicle instead of selling them on the open market, are also proving to be a viable solution. This strategy allows funds to maintain control over high-performing investments, while offering liquidity options to existing investors.

Such structured transactions aren’t a sign of distress—there’s plenty of capital available—yet they reflect the reality that the M&A market is still in a transitional phase.

For M&A to return to full strength, the industry must work through the overhang of assets acquired during the ultra-low interest rate years, following the Great Financial Crisis and the pandemic. The last cycle saw aggressive roll-ups in business services, healthcare, and other sectors, often at valuations that don’t align with today’s environment.

In my view, until more of these assets are sold, restructured, or otherwise flushed out of the system, the market won’t find true pricing equilibrium. This process will take time—perhaps even years—before buyers and sellers can engage without legacy valuations distorting expectations.

Unlike previous rebounds, this one won’t be fueled by a flood of liquidity pushing valuations higher. Interest rates are unlikely to drop dramatically enough to rescue overvalued assets. Instead, this is shaping up to be a more selective and deliberate market—where high-quality assets are rewarded, and others must find creative ways to generate liquidity without taking steep markdowns.

While the private equity industry sorts out how best to address its bid-ask spreads and the new Trump administration finds its footing, the good news is that there’s plenty of capital available for deals and structured transactions that can provide returns to investors.

I expect this will be a different kind of rebound—one that requires patience, strategic dealmaking, and a clear-eyed approach to valuation.