CEOs can anticipate a continued rise in mergers and acquisitions activity through 2025. This momentum is driven by resolution of the election, continued decline in interest rates, corporates and private equity sitting on cash to invest, and growing influence of artificial intelligence across all sectors of business.
Executives should remain cognizant of some offsetting factors, including a continued increase in regulatory pressures and more in-depth diligence reviews. Here are some M&A factors to consider.
There will be a new economic environment. With the Federal Reserve’s continued interest rate cuts and improving inflation and employment levels, the economy appears to be stabilizing, laying the groundwork for increased M&A activity.
The ongoing interest rate cuts both lower borrowing costs and contribute to a more predictable economic outlook, key drivers for deal activity which tends to push company valuations higher, as buyers are willing to pay more for companies, knowing they can finance purchases at lower costs and with less economic uncertainty.
Uncertainty lingers regarding how the incoming administration’s policies, including import tariffs and environmental deregulation, will affect the market. But indications of an overall recovering economy should positively support the M&A landscape.
Regulatory pressures will likely continue. While the new presidential administration may foster a more business-friendly regulatory climate, CEOs should still anticipate regulatory challenges, including more rigorous merger reviews and expanded reporting requirements under updated Hart-Scott-Rodino pre-merger notification rules set to take effect in early 2025.
While continuing antitrust scrutiny likely will increase deal costs and extend timelines for some transactions, the overall focus on business deregulation likely will counterbalance those concerns. Continuing regulatory pressures won’t necessarily deter dealmaking and reduce deal counts as some might expect.
Private equity demand is looking up. CEOs can anticipate a gradual increase in private equity deal volume. Private equity investors face dual demands to enter deals in the coming year: pressure to deploy dry powder by acquiring companies and pressure to sell companies to return capital to investors.
Lower borrowing costs, ongoing interest rate cuts, and potential pro-business policies from the incoming Trump administration, such as reducing corporate taxes, are likely to boost private equity’s willingness to pursue deals.
Given the recent economic environment, corporate-led M&A will likely maintain its dominance in the M&A landscape. Private equity dry powder—unused cash reserved for investment—is still suffering the effects from the higher cost of capital, longer holding periods, and few exits that may limit sponsors’ buying power relative to corporate strategics.
Fundraising capacity for private equity has been limited, as slow exit activity is still holding back the reinvestment of cash into new funds. This is despite an attempt to find alternatives such as continuation funds to create liquidity while extending hold time frames to protect investment returns. Ultimately, the ability to exit an investment feeds the fundraising because those funds usually are funneled back into private equity.
Private equity has some catching up to do to keep investors happy and the traditional private equity model flowing. CEOs can expect a continued uptick in private equity deals.
The public-to-private transactions trend will continue. Year-end totals and deal volume for transactions where public companies become private through a merger or acquisition exceeded expectations in 2024. This strong momentum is poised to continue, making public-to-private deals a serious contender for dealmakers to consider in the upcoming year.
AI and changing technology bring risks and potential rewards. Developments in generative AI allow companies to accelerate growth and offer corporates and private equity to better support the M&A deal process.
While generative AI contributes significantly to perceived value for companies, using such tools brings potential risks such as regulatory scrutiny and cyber threats. Generative AI is equipping investors—particularly private equity sponsors—with tools to conduct more enhanced and thorough due diligence on targets.
This puts further pressure on the need for target companies to focus on adopting generative AI. These capabilities reinforce the need to explore skeletons in the closet before a potential corporate or private equity sponsor does so.
Getting ahead of diligence issues can go a long way to protecting valuation. Leveraging generative AI effectively and responsibly will give companies and dealmakers a competitive edge.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Rose B. Sorensen is partner in Snell & Wilmer’s corporate and securities group in Los Angeles. Law clerk Sarah Richards contributed to this article.
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