Since the November election, deal fever has taken over. Nearly every market observer—and everyone in the M&A business—predicts a blockbuster year for deals. But will it actually happen?
Outside of mega-deals at the top end of the market, 2025 may not look much different from 2024. Here’s why:
A Shortage of Quality Sellers. Investors have plenty of dry powder and pressure to deploy it, but that doesn’t mean more high-quality, reasonably priced targets will appear. Strong sellers recognize the scarcity of their businesses and will hold out for higher valuations. While plenty of weak or marginal businesses may hit the market, a surge in quality opportunities is unlikely.
Interest Rates Are Unlikely to Drop. Lower interest rates fuel deals—but are they really coming? With a growing economy and inflation pressures from tax cuts and tariffs, the Fed has little rationale to cut rates. Unless the Fed’s independence is compromised—an ominous prospect—borrowing costs will likely remain a hurdle for dealmaking.
The Temptation to Hold. Investors eager to deploy capital may hesitate to sell existing assets if there are no attractive reinvestment opportunities. This will push up pricing expectations when acquiring from other financial investors. Disciplined players with strong track records will continue to exit at the right time, but many will opt to hold onto performing companies while offloading weaker ones—making high-quality deals harder to come by.
Inbound International Uncertainty. Tariffs will encourage foreign companies to invest in the U.S. to establish “domestic” manufacturing. While this should boost M&A activity, it will also drive up prices for desirable assets, making competition even stiffer for domestic buyers.
Outbound International Uncertainty. A strong U.S. dollar presents an opportunity to buy foreign businesses at a discount. However, unpredictable trade policies and the use of tariffs as political leverage introduce uncertainty, making it harder to assess geopolitical risk in cross-border deals.
One clear factor could boost overall M&A value in 2025: the change in Administration will likely ease DOJ and antitrust scrutiny. However, this primarily benefits the largest deals at the top of the market. By year-end, we may see a significant increase in total deal value—but overall deal volume will probably look a lot like 2024.
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