M&A outlook: What can we expect in 2025

M&A activity was subdued through 2023 and 2024 but, with the recent uptick in activity, have we finally turned the highly anticipated corner and can we now see a brighter future for M&A in 2025?

With the onset of the worldwide Covid pandemic in 2020, the M&A cycle turned positive with corporates and financial sponsors taking advantage of the availability of cheap capital arising from the loosening of monetary policy in many large economies, a low inflation environment, as well as opportunities and the need to evolve strategy in the face of a once-in-a-generation pandemic.

As world economies started to emerge from the shock of Covid, we saw inflation rise across the globe fuelled by supply chain disruption, rising input costs and geo-political uncertainty caused by conflicts in Europe and the Middle East. All the main central banks acted swiftly and raised interest rates to try and control inflation. This led to a cooling of M&A activity as private equity leaders and corporate CEOs struggled to justify valuations in a higher inflation and interest rate environment. As a result, we saw subdued levels of M&A activity in 2023 and 2024.

As we enter 2025, the prognosis for M&A is much more positive and many commentators are talking about the next uptick in the M&A cycle.

This optimistic M&A outlook is supported by a number of macro factors referred to below, leading many commentators to conclude that 2025 will represent the next up-cycle for the M&A market.

1. More geo-political certainty

Last year was the year of elections, with over 100 democracies - home to around half the world's population - choosing their political leaders. This level of political uncertainty inevitably had a moderating impact on economic activity and therefore M&A activity in 2024. As we enter 2025, we now expect greater political certainty for a number of years in many countries, including the US, the UK, India, Japan and the European Union. Should the geo-political sentiment also gradually become more positive, these elements would inevitably provide a positive stimulus to economic activity and therefore M&A activity.

2. Improved macro-economic sentiment

Central banks have been working to control inflation, which is now beginning to return to trend and target levels, and this has led to a turn in the interest rate cycle with continued monetary loosening expected throughout 2025. With inflation under control and interest rates returning to long term trend levels, this will give CEOs and private equity leaders more confidence around valuations and the broader economic outlook, which will potentially help drive the M&A market in 2025.

3. Regulatory loosening

A number of political leaders in some of the largest economies stood on a platform of regulatory loosening. We expect gradual moderation of the regulatory environment over the next few years in a number of the largest economies around the world - the US, Japan, the UK and India. This will create new M&A opportunities, which we expect CEOs and private equity leaders to act on so as to position their organizations for the future.

4. Availability of capital

Private equity continues to hold significant levels of "dry powder" and this, combined with a more creative approach to monetization, should spur further M&A activity from this important constituency in the M&A market. Corporate CEOs will look to position their organizations for the future and will have better access to capital from equity and debt markets.

5. Fast-emerging sectors

The emergence of fast developing sectors will create opportunities for M&A activity. The increasing pace of the energy transition agenda in all economies; the opportunities (and challenges) created by the emergence of artificial intelligence; the ageing population and the need for more complex healthcare; and the pace of technological change will all spur innovation and therefore M&A as organisations position their business for the future.

Preparing for uncertainties

As we finally put the world-wide Covid pandemic behind us and emerge from the challenges it created, many of the new political leaders in the large economies have prioritized economic growth. This represents a high level of political consensus that world economies need more economic growth if we are to sustain a growing world population. This will create opportunities for M&A and activity will be supported by the factors set out above unless we see the bubble burst again unexpectedly, due to another unforeseen event. However, CEOs and private equity leaders cannot be paralysed by future uncertainties - they need to act in the present to prepare their organisations for the future. Otherwise, they risk being left behind and their organisations could cease to be relevant.

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