Corporate M&A 2025

Corporate M&A: An Introduction

After a decade-low year of deal making in 2023, M&A activity experienced a modest bounce-back in 2024, nearly rebounding to pre-pandemic levels of activity based on deal value. Despite these gradual increases, 2024 was nevertheless characterised by uncertainty in the market in the shadow of the 2024 US presidential election, strict governmental regulations and enforcement, and broad regulatory changes.

As we look forward to 2025, there is optimism that M&A activity will continue to pick up steam. Factors supporting a resurgence for M&A include relaxed antitrust regulation, improved market conditions, pent-up private equity demand and unprecedented levels of dry powder for private equity to deploy. However, there are a number of countervailing factors that may prove to suppress this atmosphere, including unpredictable cross-border regulatory enforcement, uncertainty amidst trade wars and the imposition of new tariffs, and geopolitical tensions.

Preliminary data for M&A in January 2025 shows a significantly slower start than many had hoped or anticipated, with USD211.5 billion in announced deals, a 7% decrease compared to one year prior, and a 28% decrease compared to the previous month, December 2024. Based on total M&A deal volume, 2025 has had the fewest deals and the slowest start to a year since 2015. However, there is still hope that this slow start will not be the norm, and that momentum will continue to build throughout the year.

M&A activity trends in 2024

Approximately USD3.2 trillion in deals were announced in 2024, representing a 10% increase from 2023, although an 11% decrease from 2022 and a 46% decrease from 2021, as measured by the value of announced deals. Despite the year-over-year increase in deal value, the total volume of M&A deals reached an eight-year low, with 50,200 deals announced in 2024, reflecting a 14% decrease compared to 2023.

This discrepancy can largely be attributed to the number of mega-deals in 2024, with 96 deals over USD5 billion buoying the global M&A market and accounting for USD1.1 trillion in total deal value. This represented an increase of 17% in mega-deals compared to 2023 levels, marking the strongest full year period for mega-deals, by value, since 2022.

By contrast, the value of worldwide M&A below USD500 million totalled USD794.8 billion during 2024, which was a 4% decrease by value and a 17% decrease by number of deals, compared to 2023 levels.

Among the M&A activity in 2024, most transactions were centralised within the top five industries:

• technology;
• energy and power;
• financials;
• industrials; and
• materials.

In contrast to 2023, however, technology supplanted energy and power as the industry with the highest transaction value. Deal making in the technology sector totalled USD499 billion during 2024, an increase of 32% compared to 2023 levels and accounting for 16% of overall M&A deal value. Technology also led the way in terms of total deals, with more than 10,000 deals announced. Energy and power, the 2023 leading industry, accounted for 15% of 2024 deal value activity, down 7% compared to 2023, and was only responsible for 3,400 deals.

M&A trends in the USA, Europe and Asia

M&A activity for US targets totalled USD1.4 trillion in 2024, an increase of 5% compared to 2023 and the best year for US M&A in three years. US deal making accounted for 45% of overall worldwide M&A during 2024.

Outside the USA, M&A activity in both Europe and Asia also grew. European target M&A accounted for USD700.2 billion in 2024, an increase of 22% compared to 2023 levels and a two-year high. Asia Pacific deal making totalled USD767.7 billion during 2024, an 8% increase year over year. Notably, however, Japanese target M&A accounted for 20% of all Asia Pacific deal making, after experiencing a 50% increase in total deal value in 2024 compared to 2023.

Factors in favour of M&A in 2025

Eased regulatory pressure

2024 was a tumultuous year, characterised by unprecedented regulatory scrutiny in the United States, under the direction of Federal Trade Commission (FTC) Chair Lina Khan and Department of Justice (DOJ) Assistant Attorney General Jonathan Kanter, both of whom seemed to pose a war on mergers. Anecdotally, these regulatory developments seemed to chill M&A activity by disincentivising transactions or forcing parties to suffer through prolonged negotiations over regulatory risk allocation, procedural provisions and interim operating covenants. Two notable examples of blocked transactions under their watch are The Kroger Company’s USD24.6 billion proposed acquisition of Albertsons Companies, Inc., which was terminated in December 2024, and JetBlue’s proposed USD3.8 billion acquisition of its low-cost rival, Spirit Airlines, Inc., which was terminated in March 2024.

With the departure of both Khan and Kanter, there is optimism that the Trump administration will end the Biden-era interventionist approach and look more favourably upon M&A activity. Although the Trump administration is nevertheless expected to continue to focus on enforcement against purported monopolies within the tech industry, new FTC Chair Andrew Ferguson and President Trump’s nominee to lead the DOJ Antitrust Division, Gail Slater, are expected to take a more lenient, although populist, approach to antitrust enforcement.

Many had hoped that the new administration would rescind, or at least revise, the controversial Final Merger Guidelines that were introduced in 2023, but that now appears to be unlikely. These Final Merger Guidelines, which reflected the first update to the Guidelines in over a decade, articulated a policy more adverse to mergers than any policies in place at the DOJ and FTC since 1982. Transacting parties are hopeful that the regulatory landscape within the US will become more pro-merger, with more straightforward and predictable antitrust analysis and fewer blocked transactions.

Merger regulations were also curtailed in Europe in 2024. In the European Union, the European Court of Justice greatly limited the European Commission’s ability to review – and thereby investigate, condition or block – mergers within the European Union. The prevailing practice, which is no longer permitted, had previously allowed the European Commission to assert jurisdiction over transactions that did not otherwise fall within its purview but that were deemed to potentially affect competition and trade, if a review of the transaction was recommended by European Union member states that also did not have jurisdiction to review. This decision by the European Court of Justice has greatly limited the degree of regulatory intervention that the European Commission can exercise, thereby providing significantly more clarity and certainty to transacting parties. Although the European Commission may attempt to broaden its regulatory powers in the future in light of this decision, in the immediate term there is a greater sense of predictability in European M&A. This, in turn, will likely lead to more M&A transactions altogether.

Private equity exit pressure grows

M&A activity backed by private equity (PE) funds finally picked up in 2024 after a particularly weak 2023. The overall value of PE-backed M&A reached USD705.9 billion in 2024, an increase of 24% compared to 2023 and ranking as the third largest annual period for PE-backed M&A since records began in 1980. Nevertheless, many believe that 2025 is positioned to be an even better year, with favourable conditions suggesting robust growth opportunities.

Over the past three years, below-average levels of PE exits have resulted in rising average holding periods for PE portfolio companies. For example, nearly half of the 29,400 PE portfolio companies worldwide have been held since 2020, with the average holding period for sponsors being five years in 2023–2024 compared to 4.2 years in 2021–2022. Not surprisingly, many limited partners are growing impatient as they await a return on their investments.

PE funds are also now holding onto record high levels of dry powder, estimated to be roughly USD2 trillion. With a surplus of capital, PE funds are expected to be less selective and take advantage of a wide variety of market opportunities, spanning from mega-deal acquisitions and PE-backed IPOs to minority stake transactions.

With pent-up demand and unprecedented levels of dry powder to be deployed, PE investments and exits can be expected to drive a significant amount of M&A in 2025.

Headwinds for M&A in 2025

Favourable trends including those described above are expected to support M&A activity throughout 2025, although M&A will likely continue to face certain headwinds this year that may act to counteract some of the positive momentum that is anticipated. Specifically, as has already been seen through the first months of 2025, minor growing pains are to be expected in the United States as the economy and the rest of the world react to the transition of power to the Trump administration. In particular, market participants may refrain from engaging in M&A activity, both in the United States and globally, for the foreseeable future until volatility settles and they get a better picture of what 2025 has in store. Additional headwinds for M&A in 2025 include:

• unpredictable regulatory enforcement;
• trade wars;
• the imposition of new tariffs; and
• geopolitical tensions.

Trade wars and tariffs

Globally, the potential for trade wars and the implementation of additional tariffs have led to a great deal of uncertainty in the markets. It is expected that these trends and variability will cause M&A activity to slow down, at least in the near term, as market participants attempt to understand what the impact will be upon businesses that may otherwise be the targets of M&A transactions. To the extent that further tariffs are implemented, retaliation from foreign governments would not be unexpected, thereby causing additional obstacles to the consummation of transactions and further impeding deal making from taking place. These protectionist practices also make transaction valuation significantly trickier due to the variability depending on the day, introducing additional closing risk for parties to allocate in the deal negotiation stage.

Ultimately, tariffs may not entirely dampen M&A activity in the long term. Instead, the imposition of additional tariffs may actually spur some cross-border M&A activity among entities that are aiming to diversify their portfolios to reduce the immediate, negative impact of tariffs, or perhaps avoid tariffs altogether by entering new markets.

In addition, some smaller entities may opt to be the target of M&A activity in light of the latest economic landscape, as they may be better off being acquired compared to the unexpected, increased costs associated with remaining independent. Nevertheless, given the potential impact upon global M&A, it is worth keeping an eye on the trade developments coming out of the United States and any subsequent reprisals from around the world.

Foreign investment regulation

Restrictions on inbound investment into the US are anticipated from the Committee on Foreign Investment in the US (CFIUS), which has the discretion to recommend that President Trump block (or place conditions on) a deal for purposes of national security. The CFIUS approval process allows for wide discretion by the committee, so long as there is a connection to the country’s national security. As such, in addition to blocking deals that may actually cause a national security risk, there is the belief that President Trump may attempt to use CFIUS as a political weapon, using the prospects of blocking a deal to extract political concessions from foreign governments.

Enforcement activity by CFIUS has the potential to be quite impactful – in 2024, CFIUS issued its largest enforcement action ever, which was a USD60 million penalty against T-Mobile due to national security concerns connected to data breaches in connection with T-Mobile’s merger with Sprint. As such, the prospects of the politicisation of CFIUS could be disastrous to M&A activity, especially when considered in tandem with ongoing trade wars. In light of the fact that CFIUS may potentially be used as a means to negotiate deals with other nations, transacting parties may avoid transacting altogether to the extent they are located in a country that is subject to new Trump tariffs.

Furthermore, on January 2nd, the new “reverse CFIUS” rules issued by the Department of Treasury went into effect, imposing significant restrictions on US outbound investment in certain Chinese companies (and potentially companies from other “countries of concern” in the future) that are engaged in technologies related to semiconductors, microelectronics, quantum technologies and artificial intelligence. While not impacting all outbound investment, these new rules are sure to drive up compliance and diligence costs, and to generally dampen the level of US investment in China. Furthermore, it is expected that the EU may consider similar restrictions in the future that mirror the US’s “reverse CFIUS” guidelines, which is sure to have a similar impact and reduce outbound investment from the EU, if implemented.

Geopolitics

Lastly, geopolitical risks are always, and continue to be, a headwind to M&A activity, by introducing the potential for undesired uncertainty and disruption into transactions. Ongoing tensions with foreign nations create additional transaction risk and vacillation to financial markets, generally acting as a deterrent to global M&A transactions. Not only do geopolitical conflicts create the risk of sanctions and deal uncertainty (thereby driving up transaction costs, including more robust diligence), but they are often accompanied by associated economic issues that discourage deal activity, such as widespread inflation and supply chain issues.

Looking forward to 2025, continuing conflict and instability are likely in the Middle East and Ukraine, which may very well suppress certain M&A activity. To the extent any additional political tensions develop, such as those in connection with the tariffs or regulatory enforcement discussed above, diminished M&A may be one unintended consequence.

Concluding remarks

Despite a number of years of lacklustre M&A activity, 2024 moved the needle in the correct direction with modest growth, and the market seems well positioned to rebound altogether in 2025. With broad political shifts, both in the US and across the globe, M&A activity seemed primed to thrive, with favourable conditions including relaxed antitrust regulation, improved market conditions, pent-up PE demand and the expectation of continued interest rate cuts in the US by the Federal Reserve in the coming year. Nevertheless, these favourable factors may be undercut by some countervailing challenges, most notably unpredictable foreign investment regulation, trade wars and the imposition of new tariffs, and geopolitical tensions.

On balance, the factors in favour of M&A in 2025 appear to outweigh the headwinds for an expected active year for M&A spanning PE, strategic, domestic and cross-border deals. Although the year has had a slow start for deal making, it is still far too early to consider 2025 a failure – only time will tell whether optimistic expectations align with the reality for M&A activity.