M&A in 2025: Big deals, winning hands, and wild cards

As global M&A markets begin to recover, with economic and geopolitical uncertainties easing, 2025 could see a more robust dealmaking environment. The momentum of large-scale deals has been gaining traction, but the market remains mixed. While the volume of transactions over $1bn surged by 17% in 2024, smaller and mid-sized deals dropped by 18%. So, will 2025 prove to be a breakthrough year for M&A, or will challenges persist?

Larger transactions, those exceeding $1bn, though representing a small percentage of total global deals—approximately 1% of the 50,000 deals announced globally last year—often have an outsized influence. These deals not only capture media attention but also inspire other industry players to act. Executives observing high-profile deals are more likely to become confident and aggressive in pursuing their own M&A strategies to maintain competitive positioning and avoid missing out on potential opportunities.

Several factors are fueling the current surge in M&A activity. A strong focus by CEOs on growth and transformation, especially in the era of AI, alongside greater access to capital, is helping drive this momentum. Additionally, a rise in asset availability, from private equity (PE) portfolio companies to non-core business divisions being divested by corporates, further supports the M&A pipeline.

However, dealmakers must remain vigilant about several unpredictable variables, or "wild cards," that could influence the market:

1. Geopolitical Volatility: The global political landscape remains volatile, particularly as outcomes from 2024 elections continue to shape policy directions. For instance, changes in the US government could bring about unpredictable shifts in trade policies and global markets. The possibility of further geopolitical tensions could disrupt deal flows and market sentiment.

2. Rising Long-Term Interest Rates: Although inflation is moderating and central banks have lowered short-term interest rates, the rise in long-term interest rates could make financing more challenging and reduce potential returns on investment. This dynamic could have a significant impact on the ease with which deals are financed, particularly in terms of refinancing costs.

3. High Valuations in Certain Markets: As of January 2025, valuations in the US remain high, with the forward price-to-earnings ratio for the S&P 500 standing at 22.87, compared to 13.67 for international stocks. Companies with inflated valuations may increasingly turn to acquisitions for growth. A strong US dollar may also fuel more cross-border M&A activity, especially as US firms look to capitalize on opportunities in Europe and other markets where valuations may be comparatively lower.

Despite the mixed signals and potential obstacles, 2025 presents a year filled with promise for M&A activity, especially for those prepared to navigate the ever-evolving dynamics of global dealmaking.

Geopolitical Impacts and the Trump Administration’s Influence on M&A

Global political instability, particularly in countries like Canada, France, Germany, and South Korea, combined with the ongoing effects of the Russia–Ukraine war and shifts in the Middle East, creates both risks and opportunities for M&A in 2025. These events are likely to influence the global market in unpredictable ways, especially as many nations head into national elections this year. Additionally, the role of China as the world’s second-largest economy continues to stir political tensions with various countries.

The US presidential election’s aftermath remains a critical focus, especially under the new administration. Policies enacted by the Trump administration could significantly impact M&A strategies, not just in the US, but globally, with sector-specific effects.

Sector-Specific M&A Implications

• Manufacturing, Construction, and Agriculture: Trump's stance on limiting immigration may lead to labor shortages and inflationary pressures. Furthermore, tariffs could disrupt supply chains for US multinationals, affecting imports and exports alike.

• Defense: Although there are hopes that global conflicts will ease, defense spending remains high due to geopolitical tensions. This could prompt long-term M&A activity in the defense sector.

• Energy Production: Increased domestic production of oil and gas under Trump’s policies could benefit the US energy sector. Additionally, the push for renewable energy is expected to support long-term M&A activity, especially in the clean energy space.

• Healthcare and Pharma: Deregulation under the new administration may foster M&A opportunities in biopharmaceuticals and healthcare, though tariffs on pharmaceutical products and supply chain disruptions could pose challenges.

• Telecommunications: Trump's policies on satellite initiatives and telecom regulations may prompt consolidation within these industries, creating favorable conditions for M&A activity.

• Technology: Trump’s reversal of AI safety standards could facilitate more M&A activity in software and tech sectors. However, big tech and social media may still face regulatory challenges.

Geopolitical Strategy for Dealmakers

Successful dealmakers will need to adeptly navigate the shifting geopolitical landscape. Geopolitical issues could prompt dealmakers to either avoid or favor certain markets, depending on trade alliances and national security concerns. Dealmakers must integrate geopolitical risks into their due diligence processes, which will add another layer of complexity to dealmaking.

Interest Rates and the Impact on M&A Activity

The Federal Reserve’s rate cuts in 2024, along with similar actions by other central banks, have sparked a wave of M&A activity. However, as long-term interest rates begin to rise again, dealmakers may face more challenging economic conditions. Higher rates and slower growth could affect deal economics, making it more difficult to secure favorable terms.

Despite higher rates, the growth in private credit markets and increased lending activity from banks are providing ample capital for M&A deals. The rise of private credit, with $1.7 trillion in assets under management, is also fueling dealmaking, particularly with private equity firms acquiring private credit firms to capitalize on this growth.

Restructuring Trends in M&A

With private credit expanding, the number of restructurings has also increased. Companies are engaging in debt renegotiations and restructurings to improve financial stability. The rise in international restructurings—especially in the US, UK, Netherlands, Brazil, and Singapore—is expected to continue in 2025, as companies adjust to changing economic conditions.

Summary of Key M&A Insights for 2025

In 2025, geopolitical factors and shifting US policies will play a significant role in shaping M&A activity. While geopolitical instability, including the aftermath of elections and ongoing conflicts, introduces uncertainty, these events may also create opportunities. Sector-specific impacts will vary, with defense, energy, healthcare, and technology industries particularly poised for significant dealmaking activity. Interest rates and the growing private credit market will influence deal economics, with private credit expanding as a key driver of growth. Dealmakers will need to incorporate geopolitical risks into their strategies, ensuring that they are prepared for the evolving global landscape in 2025.