After two challenging years, 2024 has become the year that mergers and acquisitions “came back stronger”. Amid a challenging macroeconomic and geopolitical backdrop, ۶Ƶ Global Banking anticipate strong tailwinds to continue to drive the recovery in the M&A market as we head into 2025 and beyond.

Stars are aligned for a rebound in dealmaking activity in 2025 and beyond

  1. Macroeconomic and political shifts creating supportive backdrop for future dealmaking
  2. M&A remain imperative to corporate strategy, fueled by enhanced boardroom confidence
  3. Sponsors are returning, with more exits looming amid distribution and deployment pressure
  4. Technical and Gen AI are amongst the key drivers of the next M&A wave
  5. Constructive financing markets provide ample public and private funding optionality for M&A

Global M&A volumes vs S&P500 index

Source: Dealogic, FactSet as of 31-Dec-24

Improved macroeconomic environment creates supportive backdrop for dealmaking

  • 2024 has been a year of real political change with elections in major economies around the globe, which led to a risk-off approach and subdued dealmaking
  • The recent US election suggests a more business-friendly environment, with less regulation and lower taxes, translating into improved planning certainty
  • In parallel, inflation appears to level off and interest rates are expected to decline further, providing investors with enhanced monetary visibility and market stability
  • Policy-related unknowns include more tariffs with potential implications on inflation, which could slow down further interest rate cuts and debt-financed M&A
  • Overall, ۶Ƶ Global Banking expect that dealmaking activity in 2025 will benefit from the renewed macro clarity as corporates and sponsors seek to deploy more capital for M&A

M&A remains imperative to corporate strategy fueled by enhanced Board confidence

  • With greater clarity on the political and regulatory dynamics, corporate sentiment towards M&A as a tool to unlock growth, returns and alpha continues to improve
  • The recent strong stock market performance further augments Board room confidence to embark on strategic transactions and use shares as currency
  • ۶Ƶ Global Banking also observe that Boards are prioritizing M&A to simplify their portfolio and sharpen the clarity of their equity story with selected bolt-ons and non-core disposals
  • Unless enacted by the incumbent teams, corporate simplification opportunities may attract activists with lower hurdles for public pressure in the improved macro context
  • In 2025, ۶Ƶ Global Banking expect to see more strategic acquisitions by corporates to enhance their capabilities and footprints, and select disposals to simplify their investment cases

Sponsors are returning, more exits looming amid distribution and deployment pressure

  • The decline in sponsor activity has started to reverse in 2024, following two consecutive years of declining buy- and sell-side activity by private equity firms
  • The trend reversal is set to persist as sponsors continue prioritizing liquidity events to improve the record low distributions to paid-in capital ahead of future fundraisings
  • Private equity firms are also increasingly willing to exit portfolio companies other than only their best assets as they revive dormant projects and launch new processes
  • Sponsors use innovative structures to generate more liquidity, such as minority stake sales, pre-IPO placements, co-control deals, and continuation vehicles
  • The accelerating exit momentum will also translate into more sponsor buying activity given the increasing flow of targets, facilitating fundraising for successful sellers
  • In parallel, ۶Ƶ Global Banking expect more take-privates, continuing the trend observed in 2024 as sponsors seek to deploy capital whilst secondary buy-outs keep looming
  • The investment capacity is underpinned by USD 3.9 trillion¹ of industry-wide dry-powder, up 24% over the last 3 years², partially due to the recently depressed buy-side activity

Source 1,2: Preqin, as of 31 Dec 2024

Technology and gen AI are amongst the key drivers of the next M&A wave

  • Technology-related transactions have once again dominated the M&A volume league tables, accounting for the lion’s share of global dealmaking activity in 2024
  • Strong secular trends continue to persist, such as increasing data consumption, the speed of digitization, as well as the rapid rise of AI, cybersecurity and fintech
  • Whilst the full extent is yet unknown, gen AI is set to turbocharge M&A processes, from discovering targets to conducting due diligence to executing PMI projects
  • Tech-driven M&A is pivotal to corporates looking to improve earnings quality with recurring revenue, inc. from next-generation technologies and tech-enabled services
  • M&A activity in the tech space is also heavily driven by the renewed sponsor momentum, typically one of the largest sectors for new private equity investments
  • As such, ۶Ƶ Global Banking expect to see the strong activity in the software sector to continue in 2025, including cross-border transactions between the US and Europe
  • Digital infrastructure opportunities will continue to be highly sought after, inc. data center, fiber network and tower transactions as these industries continue to consolidate

Constructive financing markets provide ample funding optionality for M&A

  • Equity markets trade close to all-time highs, enabling corporate acquirers to use shares as consideration and benefit from attractive capital raising opportunities
  • Whilst shares have been used as acquisition currency in 30% of M&A volume announced in 2024, historical data suggest further upside as we move into 2025
  • Investment grade debt capital markets remain wide open after recording a strong issuance year in 2024 across a range of sectors, ratings and maturities
  • Public and private lending markets support an acceleration of the sponsor M&A activity, with lender competition and tightening spreads for suitable credit
  • Strong recent leveraged finance activity, up 102% year-on-year with an increased share of buyout financings, however still dominated by refinancings
  • Dealmaking activity tends to benefit from reductions in loan pricings, resulting in higher leverage ratios and purchase price valuations
  • ۶Ƶ Global Banking expect corporate and sponsor buyers to capitalize on the constructive financing backdrop, spurred by the positive macro-outlook and encouraging trading sentiment

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