M&A outlook 2025: Picking up momentum

Having turned a corner in 2024, global M&A deal activity should pick up momentum through 2025. Here’s what deal makers should expect from the year ahead.

Starting on an upward trajectory

We expect deal activity to continue to pick up through the first half of 2025 as dealmakers rebalance their portfolios and corporates restructure their value chains to reflect new trade and geopolitical trends. Pressure on PEs to return capital to investors should lead to heightened activity driven by increased portfolio company divestment and strategies. And the urge to capitalize on trending opportunities will likely drive increased investment into AI-related assets. Barring the unexpected, we expect dealmaking activity to build through 2025.

Tracking top deal markets

While the Americas attracted around half of the total deal value in 2024, the biggest gains were had in the Japan (up 54 percent) followed by Europe (which was up by 31 percent) and Middle East and Africa (which saw a 19 percent rise in deal values). The Americas grew by just 6 percent. However, there was decline in Asia-Pacific (ASPAC) region by 5 percent.

We expect to see broad growth in dealmaking activity in 2025. The Americas will likely see a sharp increase as corporates and PE managers assess their exposure to potential tariffs and trade risks. More megadeals should further bolster activity in the US. Europe should continue to grow at pace, likely led by divestments and portfolio reshaping activity. And, despite a slight decline in deal values over 2024, we expect to see ASPAC become more of an investment haven through 2025. 

The sectors making big deals

One might expect a 30 percent jump in deal values within the High Technology sector to spark a strong rally. Yet deal volumes fell nearly 27 percent in the same period. Anecdotal evidence suggests deal activity continues to be driven by AI-inspired investments & cybersecurity resulting in fewer deals, but at higher valuations. Even so, High Tech accounted for 20 percent of overall global M&A volume in 2024, netting a cumulative value of some US$516 billion.

Perhaps displaying a more cautious outlook, investors largely focused on more traditional deals and sectors. In 2024, Financial Services saw cumulative deal values rise 39 percent; the Consumer sector was up by 18 percent; the Retail sector saw values increase 68 percent.

Interestingly, the biggest deals of the year were captured not by tech firms, but by Energy and Power companies (three of the top 10 deals), Media and Entertainment & Telecommunication (two of the top 10) and Consumer Goods and Retail (two of the top 10).

Looking into 2025, we expect to see strong growth in dealmaking within the Technology, Media & Telecommunication sector (driven by continued AI fever), Infrastructure (particularly related to cities and population growth), Financial Services (driven by the need for scale and innovation), and Consumer and Retail (focused around large carve outs). 

Private equity is back in the driver’s seat

Private equity returned to the deal markets in 2024. PE-backed buyouts accounted for 24 percent of M&A total value globally, up from 21 percent in 2023. Deal value grew by 22 percent to US$781 billion. With more than US$2.9 trillion in dry powder sitting on the sidelines, fundraising timelines have started to stretch – hitting 18 months in many cases, versus 14 months a year earlier. Exits may be up in 2024, but overall PE-backed deal volume is down 29 percent on the year. Buy/sell gaps remain wider than many would like.

2025 will bring a change in market conditions. Valuation gaps will continue to narrow, providing PE with more opportunities for successful exits. Dry powder will start to be deployed, particularly as interest rates steady and inflation continues to decline. Efforts to achieve organic value creation within portfolio companies should help to bolster valuations and returns. The M&A tide is turning towards strategic expansions and leveraged buyouts, with private equity activity surging on the back of low premiums on risky debt.

Maximizing the deal with value creation

This year, we expect improved market conditions – driven by narrowing valuation gaps, economic stability and favorable monetary policies – to set the stage for increased deal activity. Bigger deals will likely continue to dominate, reflecting stronger corporate confidence. Private equity firms should drive significant activity as they look to capitalize on lower interest rates and healthier portfolios.

As such, we expect to see leading dealmakers increase their focus on value creation throughout the deal lifecycle. Indeed, by strengthening portfolio companies, leveraging operational efficiencies and aligning market expectations, many managers are pulling critical transformational levers that are helping them to expand revenue, enhance efficiency and achieve substantial growth in the evolving market landscape.

Get ready for an active 2025

Our view suggests that 2025 will bring a significant uptick in the pace of deal activity across markets and sectors. We see positive signs in the macroeconomic data, the confidence of Private Equity managers and the narrowing valuation gap. With nearly US$3 trillion in dry powder, we expect 2025 to bring significant capital deployment – both financial and strategic – as players seek to proactively and reactively transform to meet changing market conditions.

Our advice to dealmakers is to start quantifying the value of your assets and deals early, using reliable data and experienced insight. Big opportunities should emerge this year. Make sure you are ready to take advantage.