What Can We Expect from the M&A Market in 2025? - "Mergers & Acquisitions"

By Serena Luo

BS Economics, Carnegie Mellon University

"Dealmaking [is] a profession unto itself – the world’s highest paying profession. Things don’t just fall into place by accident. A good dealmaker understands that it’s his job to finesse things into place."

Looking at past trends to determine the future

The mergers and acquisitions (M&A) market has experienced volatility over the past 4 years due to the global health crisis, economic uncertainty, and changes in government policies. In order to predict the trends in the M&A market in 2025, it is necessary to look back at the market’s recent history and understand the current trends in 2024.

Impact of the epidemic on the M&A market

The COVID-19 pandemic has hardly hit all industries. The M&A market is not the exception. From the end of 2019 to the beginning of 2022, all companies and investors face unprecedented uncertainty. In the early stages of the epidemic, M&A activity was forced to halt due to embargoes, supply chain disruptions, and changes in consumer behavior in the market. Many companies struggled to predict the full economic impact of the epidemic, which led businesses to remain cautious in their M&A decisions. However, by the mid-2020s, particularly in sectors such as technology, healthcare and e-commerce, the M&A market began to recover as some sectors began to adapt to the changes brought about by the epidemic. In these sectors, many companies saw opportunities to leverage changes in consumer behavior and increased demand for digital and healthcare-related services. For example, many technology companies are actively acquiring small start-ups to enhance their capabilities in remote working tools, cloud computing and e-commerce infrastructure.

Despite a modest recovery, the M&A market still faces many challenges, including valuation uncertainty, liquidity issues, and due diligence difficulties because of travel restrictions and remote working. In addition, many companies have become more cautious as a result of the economic uncertainty brought by the epidemic, resulting in a lower volume of M&A deals than pre-epidemic levels. Banks and financial institutions are more cautious in lending, further discouraging M&A activity. Therefore, financing conditions have also become stricter. The instability of the overall economy has caused many companies to focus on their own survival rather than expansion, resulting in postponed or canceled M&A activity. What’s more, uncertainty about possible future regulatory changes, tax policies, and government intervention complicates M&A decisions. As firms dealt with the economic shock of the epidemic, M&A activity remained subdued.

"Strategic Partnership, the foundation of the successful merger". - JSC

M&A Market Trends in 2024

As we enter 2024, the M&A market is transforming as the global economy recovers, government policies change, and companies respond to the demands of new market conditions. After the recession caused by COVID-19, the global market is showing signs of recovery, although the effects of inflation, supply chain disruptions, and geopolitical tensions are still there. The tendency of businesses implementing strategic consolidation is a major driver of the rise in M&A activity in 2024. Businesses desire to increase their competitiveness by growing through mergers and acquisitions as sectors recover from the pandemic. They utilize acquisitions to improve their market position, product offers, technological capabilities, or operational efficiencies, especially in industries like technology, healthcare, and energy. In the present M&A climate, government policy is crucial. Large M&A transactions are now subject to more regulatory scrutiny in places like the US and Europe. More strict approval processes have resulted from governments' growing concern that M&A transactions do not impede market competitiveness. Antitrust issues, for instance, are particularly serious in sectors of the economy where markets are already quite consolidated. Requirements for social and environmental responsibility are also growing, especially in sectors like manufacturing and energy. Companies are concentrating increasingly on acquisitions that are in line with social trends and sustainability goals as a result of these legislative changes, which are changing the kinds of M&A deals.

Investor opinion in 2024 is cautiously optimistic. Government fiscal and monetary assistance, together with increased market liquidity as the world recovers from the pandemic, has reignited general interest in mergers and acquisitions. However, concerns about inflation and growing interest rates continue to influence financing alternatives and transaction structuring. Companies are becoming more strategic in their M&A decisions, focusing on targets that provide long-term value rather than short-term gains. As a result, despite the upturn in the M&A market, it remains cautious and selective. 

Predict the M&A market in 2025

As we look to the future, M&A activity in 2025 will likely be shaped by macroeconomic conditions and technological advancements. The general expectation for the M&A market is it will continue to recover. However, several factors will influence the pace and scope of the growth. One of the most significant factors will be the continued importance of technology and digital transformation. Many industries, including retail, finance, and manufacturing, are going through significant digital transformation, which is a shift that M&A will be very important to facilitate. Companies will continue to seek out acquisitions that enable them to leverage advanced technologies such as machine learning and blockchain, in order to enhance operational efficiency and customer experience.

"We get talent and scale from mergers." - Angela Braly

In addition, environmental, social and governance (ESG) factors will be increasingly emphasized as drivers of M&A activity. Companies at the forefront of sustainability and social responsibility are likely to find themselves in a favorable position as attractive M&A targets, with further impetus from investors and regulators. As governments clamp down on issues such as carbon emissions, M&A deals in the energy and manufacturing sectors are likely to rise, mostly on sustainability and clean energy. It is believed that a number of industries will change dramatically by 2025 as a result of M&A activity. Technology companies will continue to be a major area of M&A activity, driven by fast-moving innovation and the need for businesses to remain competitive in an increasingly digitalized world

.

At the top of the list are cloud computing, cybersecurity and artificial intelligence, as organizations look to integrate these technologies into their operations. This also means that the healthcare sector will see an increase in M&A activity as the aging population and continued demand for digital healthcare solutions create more room for integration. Pharmaceutical, biotech, and telemedicine companies will continue to seek strategic acquisitions to enhance their research and development capabilities and generate more revenue in overseas markets. Clean energy has become the norm, and governments and corporations are focusing on it, thus influencing investments in the energy sector. Traditional energy companies may look for renewable energy companies, while start-up clean energy companies may look for strategic partners to scale up their business. Most likely, there will be a wave of mergers and acquisitions (M&A) across the energy sector, with a focus on green technologies and carbon-neutral programs, as part of the shift to sustainability.

The general tendency in the M&A market for 2025 will be cautious and optimistic. Though there are still obstacles to overcome, like regulatory scrutiny and economic uncertainty, growth, innovation, and sustainability are still driving M&A activity. The technology, healthcare, and energy sectors are expected to see the biggest changes in terms of M&A. The M&A market will keep changing as firms adjust to the new economic realities, giving them the chance to strategically acquire companies and change their destiny.