Although the year started off on a high note with a flurry of activity in January, the M&A market in 2024 for the most part has settled back into being a bit of a downer. By the end of the first half of the year, there was a sharp nosedive in the number of deals being completed.
M&As have struggled to come close to the peak they experienced in the second half of 2021, and the M&A trends for 2024 point to the first half of the year being just another step downward in an overall trend of decline. Global M&A deal volume decreased sharply — by roughly 25% — compared to the second half of 2023, although the overall value of those deals increased by a mild 5% overall. The total value of those deals in the first half of the year topped $1.3 trillion, which is a far cry from the $2.7 trillion total deal value achieved in the second half of 2021.
Of course, what goes down is almost certain to go up at some point as demand for deals to get done builds in the background. Disruptions across multiple sectors caused by new technologies and changing global conditions are putting more pressure on entities to get deals done, and that pressure is expected to reach a critical mass at some point. The Federal Reserve announced in September that it will be cutting interest rates, the first adjustment since they were raised in July 2023.
Will these trends bring an increase in the amount of M&A activity moving into the new year? Or will things continue to remain choppy, with inflation still in play even while recession fears have so far proven unfounded?
Our M&A outlook for 2025 examines these and other global M&A trends.
M&A Market Trends
Here are a few of the biggest M&A trends to follow in 2025:
Digital Transformation
Digital transformation as a result of AI adoption is one of the largest mergers and acquisitions trends for 2025. Within the financial landscape, AI has its share of benefits and challenges as companies figure out the best way to harness its potential for growth.
On the positive side, AI will create new opportunities for M&A activity. AI analysis tools can help companies identify potential targets, perform due diligence, and stay on track of a challenging deal timeline. This can speed up the frequency and pace of M&A activity.
When it comes to the deal itself, both sides will increasingly rely on AI tools to mine, analyze and search due diligence data. Both parties are also paying more attention to the risks and rewards of AI tools. Buyers will need to take a SWOT analysis-informed view of AI tools to understand how their business model will be supported by AI usage within the target.
M&A Deal Volume Trends
As noted earlier, the first half of 2024 represented a steep drop in M&A deal volume compared to the previous six months. Deal volumes in the first half of the year totaled more than 23,000. Compared to the recent high point of approximately 34,000 M&A deals in the latter portion of 2021, it’s part of a troubling trend in a downward direction. There were a number of factors in play over the last few years, including higher interest rates, lower corporate valuations and volatility around the world.
These headwinds have started to slow in some global regions. Many expect the reduced friction to encourage more M&A activity, especially with regard to the recent interest rate cuts. Experts have identified three trends they believe will exert a positive influence on M&A volumes:
- Partners seek acquisitions to support the business core: Rather than acquire targets tangential to core business purpose, companies will seek M&A partners that closely align with their core. One example to note is the trend of pharmaceutical companies pairing up with biotech firms.
- Private equity investors are increasing investment activity and shifting focus: In the past, private equity investors were in no rush to move into new market sectors. Often, they preferred to time the market. These days, private equity places a greater emphasis on action rather than waiting for the perfect time to invest. As a result, private equity firms are increasingly investing throughout the business cycle. Their increasing activity can buffer M&A volumes in down cycles. Not only are private equity firms no longer waiting to buy, but their focus has also shifted toward a portfolio-based approach to M&A. Instead of the larger deals in past years, firms are focusing on acquisitions that deliver a strategic edge. Take-privates, in which a public company is bought by private equity firms and delisted from the market, were at a record high in 2022, and that continued into at least the first half of 2023. The newly private company can transform away from the spotlight. If all goes well, it can deliver a lucrative return on investment for the private equity funders.
- International deals increase to gain a competitive advantage: Twin forces of the pandemic and geopolitical instability led to a decline in cross-border deals. The reluctance to international M&A activity seems to be decreasing. Experts are forecasting a spike in international M&A volumes as players seek a competitive advantage within the supply chain by partnering with international firms.
Distressed M&As on the Rise as Companies Restructure
2023 brought an uptick in distressed M&A activity. One clear example is the financial sector acquisitions driven by US bank failures, with the most well-known example being Silicon Valley Bank.
Companies that borrowed with the expectation of higher returns may find themselves struggling to repay debts due to lower-than-expected growth. Restructuring can provide companies with a new path forward. While this type of M&A may not be desired, it's often the best choice for a business that is struggling in the current market environment.
Companies That Can Acquire Without Financing See a Competitive Advantage
Cash is king, the saying goes. In the current environment, that may well be true. Companies that have access to capital without needing to finance are well-positioned to take advantage of the current market. For them, strategic acquisitions are actually a part of the business strategy. They can buy up partners when competition is low and gain a strategic advantage within their sector.
Shareholder Activism and ESG as Forces of Change
From 2021 to 2022, activist shareholder campaigns increased by 14%, Morgan Stanley analysts discovered. The most common complaint was the need for operational improvement. Activists have not rested: In the first half of 2023, the number of campaigns hit a record-high of 850, according to S&P Global Market Intelligence. Activist shareholders are taking advantage of the inflationary headwinds to compel companies to make changes, with a correlative increase on M&As. M&A activity can support a company's environmental, social and governance (ESG) objectives. Within the energy sector, increased interest in carbon capture technologies is driving acquisitions.
Small to Midsize Deals Stabilize and Strengthen
The decrease in M&A volumes appears to be one of size. Overall, deals worth more than $1 billion dropped more than twice the rate of deals worth less than $1 billion. There are a few reasons smaller deals are less affected and expected to recover sooner. One is volatility. Large deals are more likely to be affected by global market forces. Small deals are not as impacted by volatility and are less likely to go off-track because of external forces.
Small deals are also less expensive. Companies may be able to finance the purchase with existing financial reserves or by selling off assets, rather than seeking financing. Thus, the high interest rates are not as much of a turnoff as they are for companies that need to finance their M&A activity.
The regulatory environment also plays a role. Big deals are subject to stricter regulations than small ones. Regulatory and compliance issues can deter a large company from the M&A process. For smaller deals, the obstacle just isn't there. There are sectors of the market where M&A activity remains strong. For these reasons, some analysts forecast a steady rise in M&A activity in the coming year.
M&A Trends by Sector
Looking ahead into the next 12 months, it’s expected that certain sectors will experience differing levels of M&A activity. Some of the sectors anticipated to undergo the most change include:
- Technology — Digital transformation and continued investment in AI are sure to continue tech’s dominance over the M&A market in 2025. Expect some significant deals focused on AI, cloud computing and cybersecurity as the year continues.
- Healthcare — With costs continuing to rise and biotech innovations on the march, acquisitions in the healthcare sector are expected to be healthy, with a particular emphasis on telemedicine and pharmaceuticals.
- Energy — As other industries intensify their efforts in ESG, clean energy and sustainability-focused deals are expected to increase, especially with regard to renewable energy and carbon capture technology.
- Automotive — With sustainable transportation gaining momentum all the time, increased investments in electric vehicle infrastructure, battery technology and autonomous vehicle development should drive more deals.
- Financial Services — More consolidation within banking and fintech is expected as firms seek scale and efficiency through mergers.
M&A Market Outlook for 2025
Taken together, analysts generally agree that M&A activity will rise, despite economic uncertainty. Moderate growth is expected as interest rates stabilize and global economies continue to heal from disruptions inflicted by the pandemic. Ongoing integration of AI, machine learning and cloud-based computing are expected to fuel deals in tech, healthcare and the financial services sectors as businesses continue to drive digital transformation efforts.
Analysts widely believe that challenging market conditions will themselves lead to opportunities for increased M&A activity. Consider the rise in corporate restructuring seen in many sectors. The root issue is low valuations, in which the company (or sections of the company) are seen as having less value. Companies may find themselves with subsidiaries or assets that feel mispriced relative to valuations. Disposing of the mispriced asset can free the company of unwanted weight; a cash-rich or private equity buyer may feel as if it’s a bargain.
Private equity firms tend to hold onto investments for an average of three to five years. Considering the uptick in private equity investments in 2020 and 2021, that three-to-five-year time frame is here. If these companies stick to the usual playbook, they'll soon be looking to cash out. This in turn can bring new life into a market that feels lackluster at present. Analysts are optimistic about M&A volumes moving into 2025. PE firms should maintain a strong presence, particularly through strategic acquisitions in growth industries including renewable energy, biotech and fintech.
Geopolitics will continue to exert an influence on the M&A outlook landscape. Domestically, the capital gains tax increase that many were fearing seems to be off the table for now — but with the presidential election in November 2024 and the balance of power in Congress at stake, there are no certainties. Internationally, the political landscape remains fraught with continued wars between Israel and Hamas and also in Ukraine. Investors are still cautious and attuned to threats on a global stage. However, the war in Ukraine is not as shocking as it was at onset; thus, there's reason to believe its influence is on the wane. Cross-border M&As are expected to rise, particularly between U.S., Europe and parts of Asia. Industries such as energy, infrastructure and tech will be looking for synergies in new markets.
Looking ahead, many of the factors that suppressed M&A activity are still in play. There are also opportunities coming to fruition. Analysts making their M&A forecasts believe activity will begin to rise, driven by several interrelated factors.
More than ever, companies that find themselves engaging in M&A activity need tools, workflow and file management capabilities that leverage advanced features including artificial intelligence. See why companies choose DFIN for their M&A software solutions.
