M&A Today: Deal Activity Expected to Accelerate in 2026

Jeff: 00:00

Chris, welcome to Solomon Connects. This is our M&A monthly podcast, M&A Today, where we break down the key market forces shaping deal activity. I’m Jeff Jacobs, Head of M&A and COO of Investment Banking here at Solomon Partners.

Chris: 00:15

And I’m Chris Moynihan, a Director in the M&A Group. Today, we are taking a look forward and discussing our outlook for 2026, and we wanted to share some of our insights and themes that we expect to play out for the rest of the year. Jeff, let’s start with the big picture. How did 2025 wrap up for M&A, and what’s the market sentiment looking like as we kick off 2026?

Jeff: 00:39

Absolutely. 2025 ended on a strong note for M&A. US volumes finished up over 50% year over year, and we saw about $2.5 trillion in announced deals that was materially higher than volumes we had seen in the prior three years, and definitely edging closer to the heights we saw at the 2021 peak. So, as we flip to 2026, we are absolutely optimistic, certainly about the continuing pace of deal-making. Financing conditions continue to improve and borrowing costs continue to decline, both of which — obviously favorable for M&A. We’re also seeing CEO confidence rebounding as clarity emerges around some of the tariffs and taxes and regulatory issues; and all of that really gives CEOs and boards the confidence to make some of these interesting and strategic moves.

Chris: 01:27

So, let’s double-click on financing for a second. You mentioned conditions have improved. What are we actually seeing in the markets?

Jeff: 01:35

Financing conditions have meaningfully improved in 2025, public-debt issuance remained strong and acquisition-related loan volumes rose year over year. Liquidity — we’re seeing it available for both refis and for funding new transactions. Also, the spreads for LBO financing have declined for the third consecutive year. So, the cost of capital is easing for the sponsors. Private credit continues to remain active at slightly off-peak levels, but it certainly continues to provide a competitive alternative for buyouts and recaps. All of these dynamics are really helping to lower the friction to get deals done, and they also help expand the buyer universe for exits, which creates a more favorable backdrop for transaction activity.

Chris: 02:17

One player that was missing in action last year — and we talked about this on prior episodes — was sponsors. Although large sponsors stepped up, sponsor transactions for $5 billion-plus transaction value increased over 100% last year, year over year. Middle-market sponsor activity still increased far less than the broader market. What do you think will need to change for activity among those sponsors to increase in 2026?

Jeff: 02:42

Well, you know, Chris, that is the question that’s on everybody’s minds. You and I have talked about that a lot with our colleagues. You know, the question really is, will this finally be the year activity really resumes, particularly for middle-market sponsors; as you mentioned, private equity is certainly sitting on record numbers of companies. LPs want those distributions; hold periods, as we know, have stretched well beyond norms. You know, we saw sponsors get creative over the last couple of years and designed a number of different structured solutions, continuation vehicles (CVs), NAV loans. But the appetite for those isn’t infinite. CVs, interestingly, actually accounted for about one in five overall sponsor exits in 2025, but I think some investors worry that maybe these structures aren’t always appropriate, maybe they don’t always equate to the traditional arm’s length sales that folks are more comfortable with. I would say the good news is that the large-sponsor activity has already picked up, that drove a lot of those volumes we saw last year. Total sponsor deal volume up over 60% year over year. And it was largely driven by all those mega deals that we’ve been seeing get announced. And we’ve seen lots of examples of those, of course — you know the high-water mark being the mega take-private of Electronic Arts for $55 billion.

Chris: 03:55

And do you think that activity trickles down to the middle market as well?

Jeff: 03:59

I do. You know, historically, when these large-cap deals start flowing, momentum cascades through the rest of the market; and with big sponsors already active, we certainly expect middle-market activity to accelerate as firms deploy that dry powder and move to monetize some of those aging portfolios. I don’t know that the floodgates will open immediately, but more and more funds are going to start bringing new deals to market.

Chris: 04:24

Another theme that we’re witnessing is this tug of war between public and private markets. Being a public company is difficult; and for many companies, they’re opting to stay private or go private so they can avoid the cost regulatory burden of being a public company. Do you think we’re going to see some companies return to the public markets — either through IPOs, or is this a permanent retreat and more companies will just go private or opt to stay private?

Jeff: 04:50

I think, candidly, we’ll see both. Right since the 2021 IPO boom, the number of sponsor-owned –meaning, those privately held assets — rose roughly 18%. And at the same time, the number of public companies fell about 16%, and that continues a long-term trend that we’ve seen over a number of years. And even with strong equity markets, the IPO market hasn’t come anywhere near those historical levels that we saw a few years back. So, that may be changing. We’re hearing about several marquee private companies — Anthropic, OpenAI, SpaceX — all signal interest in potential listings, and that could set a more favorable tone; at the same time, take-private volume surged a lot last year, driven by a whole host of things, regulatory fatigue, valuation gaps, certainly the appeal of operating out of the public spotlight. The open question for this year, going into 2026, is whether some of these marquee IPOs start to offset that, take-private volume, or maybe simply coexist as boards choose the best fit for their assets.

Chris: 05:55

Let’s talk about corporates. Strategics were on the front foot in 2025 — is that pay sustainable? And where might they focus?

Jeff: 06:04

We think it continues. Corporate deal volume reached about $1.6 trillion, up roughly 46% since 2024,  driven by strong earnings, by cash-rich balance sheets, by that increasing CEO confidence we’ve spoken about, and we’re actually seeing a number of what I’ll call in-sector consolidations or vertical integrations. There was more than $900 billion of volume for these types of deals last year. That’s double what we saw the previous year, and that’s in contrast to some of the horizontal acquisitions we saw in the past. So, think about deals like Amazon, Whole Foods. Those types of deals seem less in favor these days, as shareholders are rewarding scale and simplification rather than these big, expansionary pushes into new categories.

Chris: 06:50

And, so, as they think about those scale acquisitions and combining vertically rather than horizontally, as you said, what should companies be thinking about for the regulatory environment? How is that going to impact their corporate strategy around acquisitions?

Jeff: 07:04

It’s going to impact in a couple of different ways. For one, companies are opting for scale, especially since the DOJ, the FTC, have shown more willingness to permit structural remedies; think: things like divestitures. If they’re able to do that, rather than getting their deals blocked outright, that leaves a real path for some of these transactions to comfortably get done. Now, we’ve seen boards actively review their portfolios to evaluate potential divestitures of non-core businesses. That’s the story that played out all last year. Corporate divestiture volume reached over $400 billion in 2025, nearly 60% above what we saw in the previous year.

Chris: 07:42

So, Jeff, what’s your advice for boards and management teams as we wrap up here?

Jeff: 07:47

I would say a couple things. First, prepare for increased sponsor exits with supportive financing conditions and LPs seeking distributions; the pace of sponsor exits is going to increase. Second, keep your eye on some of these rumored mega IPOs. They could definitely pave the way for more momentum in public listings. Lastly, I would watch for more strategic consolidation, as regulatory remedies ease pathways and companies continue to sharpen priorities. I expect in-sector consolidation to remain a dominant theme. All in all, we feel really good about the year ahead for M&A.

Chris: 08:23

We like to hear that. Thank you, Jeff. We appreciate your insights always. Thank you to everyone for tuning in. Be sure to check out solomonpartners.com for more of these insights, and we’ll be back next month with another M&A update.