Key takeaways:
- A favorable regulatory environment and strong capital markets are expected to boost M&A activity in 2025.
- The accumulation of private equity capital is expected to drive increased deal and exit activity in 202
- Acquiring AI capabilities through M&A is challenging due to market gaps and regulations. Alternative strategies include partnerships and minority stakes.
A supportive regulatory environment for M&A and robust capital markets are expected to drive a surge in dealmaking activity in 2025.
This momentum is fueled by several factors, including CEOs prioritizing growth and transformation through AI, ample capital availability, and an increased supply of assets entering the market—ranging from private equity (PE) holdings to non-core corporate divestitures.
However, with inflation and interest rates remaining high, instability persists. Furthermore, the results of the U.S. presidential election and possible policy changes may influence M&A activities both domestically and globally.
Let’s explore the factors driving this momentum and what it means for the future of M&A.
High expectations for 2025
The global M&A market is poised for strong growth in 2025. This optimistic outlook is driven by lower interest rates in the U.S. and Europe, the resolution of key national elections, and robust equity market performance. Furthermore, companies continue to face the imperative to adapt strategically and pursue expansion.
A report from SS&C Intralinks finds that 87% of global M&A dealmakers expect M&A and financing activity to increase this year. Approximately 39% of respondents expect this increase to be significant, suggesting that the fiscal challenges of recent years are receding.
Furthermore, BCG’s M&A Sentiment Index finds that optimism is high, particularly in the Americas, increasing from 81 in August 2024 to 91 in January 2025. Likewise, the European index rose from 76 in November 2024 to 84 in January 2025.
Regulatory shifts and strategic considerations
The new Trump administration is expected to adopt a more relaxed approach to M&A enforcement by federal antitrust agencies. With Andrew Ferguson appointed as Chairman of the Federal Trade Commission and Gail Slater leading the Antitrust Division at the Department of Justice, we can anticipate a shift toward a more restrained enforcement of antitrust laws.
It is unlikely that all M&A will proceed smoothly. The Committee on Foreign Investment in the United States (CFIUS) is likely to remain a significant hurdle for companies from China and other non-favored countries looking to invest in the U.S. Additionally, CFIUS may be used to leverage trade agreements by threatening to block deals that involve countries and industries facing tariffs under this administration. Moreover, federal antitrust enforcement could become more unpredictable, leading to investigations or attempts to block deals based on political considerations.
U.S. and global dealmakers must carefully review any transactions involving important U.S. technology or infrastructure, especially if they involve American personal data. They should look at these deals with a focus on national security, similar to how the new administration would approach them.
Private equity
A lengthy decline in deal activity has resulted in a significant accumulation of private equity capital, often referred to as "dry powder." Many private equity funds are now under pressure to sell off older investments – some retained for over the standard three-to-five-year timeframe – to return capital to their investors. Concurrently, many companies are realigning their focus on core operations and beginning to sell off non-core assets.
Furthermore, recent interest rate reductions by the Federal Reserve and the European Central Bank are fostering a more advantageous environment for liquidity and deal-making. Both capital markets and alternative financing avenues are performing well.
The Wall Street Journal reports that numerous bankers and dealmakers are optimistic about a significant increase in deal and exit activity in 2025. However, some analysts are taking a more cautious stance, noting that the disparity between sellers' and buyers' expectations regarding company valuations continues to hinder dealmaking efforts in 2025.
