After declines in the number of mergers and acquisitions (M&A) in 2022 and 2023, 2024 was expected to mark a year of significant growth. Although the pace of deals did increase last year, the anticipated rebound did not fully come to pass, thanks to a challenging regulatory environment that impeded some of the largest proposed deals and delays in private equity firms selling assets they had acquired in recent years. Now, with a new presidential administration and private equity under growing pressure to return funds to investors, the outlook for increased growth looks bright for 2025 (with the caveat that the impact of possible tariffs and changes to U.S. immigration policies are as yet unclear).
Here are some key trends that point to a revitalization of M&A in 2025:
The Reemergence of Financial Sponsors
In the past three years, higher interest rates have increased borrowing costs and depressed corporate valuations, which has had a dampening effect on M&A transactions. In this climate, financial sponsors have been delaying selling off assets as they waited for a more favorable environment. With a high inventory of private-equity-owned assets, firms will need to sell those assets and return capital to investors in order to raise new funds.
In 2024, there were a considerable number of take-private transactions, which gave financial sponsors opportunities to deploy capital and allowed formerly public companies to grow without having to deliver quarterly returns to public shareholders. While this is likely to continue, a 2025 rebound will need to include a greater focus on sales of assets.
Deployment of Capital Under a More Favorable Regulatory and Anti-Trust Environment
The new presidential administration has already strongly signaled their intention to create a more favorable regulatory and anti-trust environment. This marks a significant contrast from the former administration, in which there was increased regulatory scrutiny, especially on the largest deals. It is expected that private equity and venture capital firms with undeployed capital—currently estimated at approximately $2 trillion—will look for opportunities to take advantage of in the current market.
Change Spurred by Activist Investors
In 2024, shareholder activism continued its upward trajectory for companies of all sizes, in part fueled by activists pursuing board representation in large- and mega-cap companies. A stronger M&A environment more favorable to potential buyers is likely to encourage more such investors to go after corporate separations at undervalued companies.
Continued Cross-Border M&A
Since the pandemic, the U.S. economy has grown more strongly than those in the U.K. and Europe, with Gross Domestic Product (GDP) growth of 11.5% from the fourth quarter of 2019 to the third quarter of 2024 (compared to 2.9% for the UK and 4.6% for the Eurozone during the same period). This sets up incentives in both directions for strategic acquisitions, as European companies seek to enter the lucrative U.S. market and U.S. companies take advantage of lower valuations of European companies to expand their footprint and acquire new capabilities at advantageous prices. Also, in Japan, the 2023 publication of new guidelines to promote desirable M&A transactions and shareholder transparency marks a shift to a more friendly attitude toward M&A compared to previous policies.
As a cautionary note, corporations, private equity, and venture capital firms may be hesitating to move too quickly in the current confusion over the ultimate effect of proposed tariffs and uncertainty over which U.S. tariffs (and potential retaliatory tariffs from other countries) may ultimately be imposed. Similarly, unknowns associated with the impact of new immigration policies may have a short-term quelling effect on new M&A deals. However, in general reduced regulation and the availability of capital should forecast a positive long-term outlook.
Expert M&A Law Firm for Domestic and International Transactions
At Bridge Law LLP, our experienced business law attorneys understand that creating a successful merger or acquisition is about more than taking advantage of favorable economic circumstances. Our expertise in negotiation, due diligence, and tax efficiency in both domestic and international M&A will help shape deal terms that protect your interests and achieve the maximum value from your transaction. To learn more about how we can provide your business the highest quality legal services in the M&A market, contact us here to schedule your consultation.