M&A Outlook for 2025
The outlook for M&A activity in 2025 look strong with corporate buyers likely to take the lead position in company acquisitions.
In a recent report, global financial database Pitchbook concluded that the global mergers and acquisitions (M&A) market is showing signs of recovery as it emerges from a challenging two-year period marked by tighter monetary policies and higher interest rates. These factors, which began affecting the market in 2022, dampened deal activity by increasing the cost of financing and creating a disconnect between buyers’ and sellers’ expectations. As a result, M&A activity plummeted by nearly 35% in 2023, reaching its second-lowest point in a decade.
However, by the third quarter of 2024, M&A activity began to rise, with both the number of deals and their total value increasing by more than 13% and 26%, respectively, compared to 2023. This surge indicates a broader market recovery as M&A activity starts to gain momentum.
The M&A landscape can be divided into two main categories: corporate-led acquisitions and private equity (PE)-led acquisitions. Corporations have proven more resilient during the downturn, benefiting from larger cash reserves and better access to financing. They are able to make acquisitions more easily compared to private equity firms, which rely on borrowing. High interest rates have hindered private equity’s ability to complete deals, making it difficult for them to compete with corporate buyers.
Despite these challenges, private equity activity is showed signs of revival in 2024, particularly in the buyout sector. However, due to a shrinking pool of available capital, private equity firms are still at a disadvantage when it comes to competing with corporations for deals. As of early 2024, global private equity “dry powder” (funds raised but not yet deployed) had decreased by 2.3% from the previous year, and weak fundraising has further constrained the sector. Additionally, the lack of exits—where private equity firms sell portfolio companies to generate returns—has reduced the capital available for new investments.
On the corporate side, large cash reserves have provided companies with flexibility in executing acquisitions. Many corporations have significantly increased their cash holdings since the pandemic, positioning themselves well for M&A opportunities. By the end of 2023, non-financial companies in the S&P 500 held 56% of their funds in cash, and by 2024, U.S. companies’ cash reserves reached a record $4.1 trillion. This accumulation of cash, coupled with strong stock market performance, has enabled corporations to secure lower-cost financing and pursue acquisitions even in a high-interest-rate environment.
In contrast, private equity firms, which depend on leveraged buyouts (LBOs), have struggled with the increased cost of borrowing. Their ability to fund new deals has been limited not only by high interest rates but also by a slowdown in fundraising and a longer time required to close new funds. As of 2024, the median time for closing a private equity fund had stretched to nearly 17 months, signalling a decline in investor confidence and making it harder for firms to raise new capital.
Overall, while there are signs of recovery in the global M&A market, corporate buyers are likely to maintain a stronger position than private equity firms in the short term. Corporations’ large cash reserves and better access to financing give them an edge in capitalising on current market conditions. While private equity is seeing some resurgence, particularly in buyouts, its ability to compete with corporate acquirers remains limited due to tighter access to capital and a decline in exits.
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Tags: company sale, M&A, mergers and acquisitions, Outlook 2025
