BLOG — Feb 04, 2025
M&A Outlook and Strategic Opportunities in 2025
On December 11, 2024, S&P Global Market Intelligence hosted a webinar featuring analysis from Joe Mantone, US Financials News Desk Editor at S&P Global Market Intelligence and remarks from M&A practitioners Jay Hoffmann, North America Co-Head of M&A at JP Morgan and Anton Sahazizian, Managing Director and Global Head of Mergers & Acquisitions at Moelis & Company. In addition to reviewing the data behind 2024’s M&A trends and the current state of dealmaking, they had a candid discussion with S&P Global Market Intelligence’s Joe Toomey on what lies ahead for the industry.
2024: A Year of M&A Data in Review
The mergers and acquisitions landscape showed promising signs of recovery at the end of 2024, with data pointing to increased deal activity and practitioners citing emerging opportunities across sectors. An analysis of 2024's transactions and our analyst insights in The Big Picture for M&A in 2025 report suggest a positive outlook for the year ahead.
The M&A market in 2024 showed significant recovery from its two-year downturn. According to Joe Mantone, "2024, with still a month to go, had already surpassed the full value of full year 2023 [M&A]." While not reaching 2021's trillion-dollar quarterly peaks, the growth trajectory remains promising.
Large-scale transactions increased notably in 2024, particularly in private equity. The market recorded 29 deals valued at $10 billion-plus by early December, exceeding both 2023 (24 deals) and 2022 (25 deals). Though megadeals in the $60 billion range were absent, consistent activity continued in the $30 billion range.
Geographic trends varied across regions. U.S. M&A activity demonstrated five consecutive quarters of growth before a Q4 pause due to election uncertainty. European activity remained steady, with fourth-quarter totals matching 2023 and showing year-over-year growth. Despite lower U.S. Q4 totals, Mantone expects global deal volumes to nearly match 2023's full-year figures.
Global and US M&A Recovery Trends Impacting 2025
Market recovery showed promising signs post-election, with Sahazizian noting "it's almost as if we've seen a light switch turn on," leading to increased deal completions and new pitches. Moelis anticipates a wave of high-quality deals in early 2025, particularly in Q1 and Q2.
Hoffmann highlighted that despite interest rate uncertainties, strong macro conditions and GDP growth are boosting M&A confidence. He projects deal volumes could increase by at least 15% in 2025, though new tariff policies may impact rates.
The anticipated Trump administration is expected to create a more favorable deal-making environment than its predecessor, particularly for energy and financial sectors. However, big tech and healthcare will likely face continued regulatory scrutiny. While cross-border M&A opportunities remain abundant, especially for Asian, Latin American, and European buyers entering the U.S. market, deal complexity presents challenges. As Sahazizian noted, "Complexity is pretty much the norm today," citing carve-out mechanics and extended timelines for cross-border transactions.
The Impact of Interest Rates
Discussing interest rates' influence on deal-making, Hoffmann emphasized their critical relationship with valuations, noting, "What we saw in 2021 is that when people expected interest rates to rise, valuations declined quite rapidly." He suggested that anticipated rate declines could boost valuations and create a more favorable M&A environment.
The focus isn't on specific rate levels (whether 3%, 3.25%, or 3.75%) but rather on market stability and predictability. While declining rates are encouraging, the absence of dramatic rate movements is crucial for deal planning. As Sahazizian explained, "M&A is driven by a perspective that somebody looks out and says, okay, I'm comfortable that there's terra firma, there's stability in the marketplace, and I can model things out."
However, an unexpected challenge has emerged: rising stock prices over the past 6-8 months have made acquisition targets significantly more expensive, with some valuations increasing up to 50%. This has created a paradox where buyers are hesitating while sellers are increasingly motivated to remain independent due to improved valuations, demonstrating how market appreciation can impede deal completion despite stable rates.
The Evolving Role of Private Equity
Private equity's growing influence in M&A was a key discussion point. Citing a S&P Capital IQ Pro datapoint, Sahazizian highlighted an increase in $5 billion-plus deals with private equity buyers, demonstrating their active pursuit of deployment opportunities.
The private equity landscape has evolved significantly since early 2022, driven by intense pressure to return capital to LPs. Firms have adapted through structured transactions, dividend recaps, and continuation vehicles. Despite concerns, panelists reported no shortage of capital in debt markets, with funding flowing from diverse sources including credit funds, sovereign wealth funds, family offices, and insurance companies.
While the industry shows strong potential for rebound, the primary challenge isn't capital availability but rather reaching valuation agreements between buyers and sellers to restart the capital-raising cycle. With substantial dry powder available, private equity is positioned to remain a dominant force in 2025's M&A landscape, particularly in larger deals.
Trending: Liability Management and Corporate Divestitures
Our fireside chat highlighted two key trends surfaced by our S&P Capital IQ Pro data. First, liability management's role in M&A has evolved significantly, with teams adopting a more holistic approach combining traditional expertise with industry and M&A partnerships. Despite recent refinancing activity, many businesses maintain heavily leveraged structures, making liability management crucial. Private equity portfolio companies, facing limited exit opportunities, are increasingly utilizing dividend recaps and creative solutions to address capital structure challenges and avoid Chapter 11 scenarios.
Second, corporate divestitures have reached a two-year high, marking a strategic shift in portfolio management. This trend is driven by elevated public market valuations, proactive responses to activist pressure, and healthy corporate balance sheets. Hoffmann noted this follows a predictable M&A cycle, with companies that completed deals during 2019-2021 now reassessing their portfolios ahead of potential economic challenges.
While private equity buyers show strong interest in these assets, successful divestitures typically stem from strategic rather than distressed decisions. As Sahazizian observed, "when some of these corporate divestitures come to market, you've seen very, very active and aggressive activity from the private equity side to buy in." However, valuation gaps between buyers and sellers remain a key challenge.
Sectors to Watch in 2025
The discussion concluded with sector-specific M&A expectations for 2025. Hoffmann predicted increased scrutiny for big tech companies while noting more favorable conditions for energy (both traditional and cleantech) and financial institutions, stating, "big tech will be under more of a microscope than a lot of other sectors."
The industrial sector shows growing activity, particularly where manufacturing meets technology, with Sahazizian noting "blurred lines between what's industrial and what's industrial tech." Healthcare, power, utilities (especially data centers and crypto energy), and fintech are also expected to see substantial deal flow.
While AI generates significant buzz, Hoffmann describes it as "sufficiently nascent" for M&A activity and challenging to value. Current AI activity focuses more on company formation than consolidation, though its impact is already evident in deal evaluation and marketing, as investors explore how AI applications could transform target companies' growth potential.
Takeaways and Strategic Considerations for 2025
Here are five key takeaways for the dealmaking community based on this panel discussion:
- Anticipate a more accommodating regulatory environment in 2025, particularly in financial institutions and energy sectors, though big tech and healthcare will continue to face heightened scrutiny under the new administration.
- While interest rates are expected to decline, the market's focus should be less on specific rate levels and more on the stability and predictability of the rate environment, which is crucial for deal modeling and financing.
- The valuation landscape is evolving with middle market gaps narrowing due to organic business growth, though rising stock prices have created new challenges by making some targets significantly more expensive than they were 6-8 months ago.
- Private equity firms are under intense pressure to return capital to LPs, leading to increased creativity in deal structures and exit strategies, even as abundant capital remains available from diverse sources.
- Watch for sectors experiencing rapid transformation and requiring significant capital investment, particularly in energy, industrial tech, and fintech, while AI's impact on dealmaking remains nascent but increasingly important.
Read the full transcript or watch the webinar replay for even more insights on the M&A landscape in the months to come. Request a meeting to explore transactions data and analytics, along with data on 54+ million private companies on S&P Capital IQ Pro.