The outlook for global deal-making

2024 Market Performance and 2025 Outlook

• 2024 M&A activity grew approximately 10% year-over-year, recovering from five-to-10-year lows in 2023.
• Goldman Sachs expects a similarly balanced 10–15% increase in deal activity for 2025, rejecting forecasts of "rocket ship" growth.
• The market is characterized as a "gradual crescendo" driven by converging factors rather than a sudden surge.
• Strategic imperatives established post-pandemic to reposition portfolios remain a primary driver for deal flow.

Macroeconomic Drivers

• Declining inflation and the Federal Reserve's initiation of a rate-cutting cycle have reduced financing costs for both financial sponsors and strategic buyers.
• Despite rate cuts, the 10-year Treasury yield has remained resilient above 4%, requiring market participants to psychologically adjust to a "new normal" where capital is not free.
• Valuation normalization is occurring as buyers and sellers adapt to longer-term interest rate environments.

Private Equity Dynamics

• Private equity historically constituted nearly 40% of the M&A market but has dipped to the low 20s in recent years; a rebound is anticipated but moderated by exit challenges.
• Capital deployment rates in 2024 increased rapidly, approaching long-term averages (excluding the anomaly of 2021), with significant activity in public-to-private transactions.
• A major constraint on activity is the lack of exit options, as large portfolio companies ($10B+) have a narrow buyer universe.
• The revival of the IPO market is viewed as essential for sponsors to monetize assets, creating a "dual track" strategy with M&A.
• Pressure on sponsors to return capital to Limited Partners (LPs) is compounding as investment duration extends and IRRs suffer from time.

Geographic Trends

• Europe: Experienced a sharp acceleration from muted 2023 levels, with rapid normalization in deal volume, including significant financial institution consolidation and public-to-private waves.
• Asia: Activity is trending similarly to Europe but lagging by a few months; highlights include recovery in Australia, strategic focus on India, and accelerated corporate-led activity in Japan.
• China: Deal activity remains muted compared to other Asian regions.
• Cross-Border Flow: There is an uptick in cross-regional deals, specifically European corporates acquiring U.S. growth assets, with reciprocal interest from U.S. firms entering Europe.
• United States: Continues to benefit from perceived stability, energy supply advantages, and onshoring trends, attracting foreign investment.

Sector-Specific Activity

• Energy: Marked by historic consolidation, with large-cap companies acquiring molecules and inventory to secure resources.
• Healthcare: Large-cap pharmaceutical companies are acquiring smaller firms to access specific technologies (e.g., mRNA, weight loss) they lack internally.
• Technology: Major players are acquiring software and IP to augment portfolios, driven by the need for innovation.
• Consumer: Continued activity focused on brand acquisition and business expansion.
• Infrastructure: Significant capital deployment in digital infrastructure and data centers.

Strategic Themes

• Scale: There is a universally accepted imperative for scale across geography, products, and balance sheets to manage supply chain diversification, financing costs, and market capture.
• Generative AI: Currently driving investment and partnership formation (especially in energy, real estate, and data centers) rather than direct M&A, as companies work to secure power for data centers.
• AI Valuation: The M&A market for AI is expected to mature later as company winners become clearer and valuations can be established; current focus is on securing power and partnerships.

Risks and Headwinds

• Potential derailment factors include geopolitical instability, wars, regulatory shifts, and unforeseen "black swan" events.
• The primary risk to 2025 growth is the failure of regulatory and geopolitical headwinds to abate as clients expect.
• Markets remain cautious about large-scale transactions if risk appetites or financing conditions deteriorate.
• While long-term cyclical recovery above 10-year averages is expected, the timing of a return to pre-2023 volumes remains uncertain.