10-Min Read
December 2024
2024 M&A in Review and the Outlook for 2025
The M&A landscape appears poised for significant activity as we move from 2024 into 2025. The resilience demonstrated in 2024, combined with the anticipated policy shifts under the Trump administration, creates a potentially favorable environment for dealmaking.
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M&A RESILIENCE AMID UNCERTAINTY IN 2024
As we reflect on the M&A landscape of 2024, it's clear that the market demonstrated remarkable resilience in the face of persistent challenges. While the year didn't bring the explosive growth for which some had hoped, it marked a steady recovery from the lows of 2023 and set the stage for potentially more robust dealmaking in 2025.
Modest but Steady Growth
Global M&A activity reached $3.5 trillion in 2024, a figure consistent with mid-2010s levels. This represented a 12% increase in corporate M&A compared to 2023, with deal volume rising by 7%. The U.S. market showed particular strength, with aggregate U.S. deal value reaching $1.32 trillion over the first three quarters, a 5% increase year over year.
The Return of Scale Deals
One of the most notable trends in 2024 was the resurgence of scale deals. These accounted for 59% of the largest strategic deals in 2024—the highest proportion since 2015.
Generally, the trend shows a significant increase in deal activity from 2020 to 2021, followed by a gradual decline in subsequent years. However, despite the recent decrease, the number of deals remains substantial, indicating ongoing M&A activity across various sectors and regions.
This shift reflected a focus on rock-solid value creation and bankable synergies, particularly in industries with higher fixed costs such as energy and natural resources, retail, financial services, and telecommunications.
Adaptation to Economic Realities
Dealmakers adjusted their M&A strategies to account for higher interest rates, focusing on both revenue and cost synergies in tandem. This approach was particularly evident in the tech industry. For example, when announcing the proposed $14 billion deal for Juniper and its AI-native networking business, HPE cited attractive immediate and long-term opportunities for both top-line and bottom-line growth.
Technology and AI at the Forefront
Technology remained a hot sector throughout 2024, with companies across industries acquiring targets to build critical capabilities, especially in AI. Thomson Reuters acquired Safe Sign Technologies, a developer of legal-specific large language models, to enhance its workflow management offerings. Stryker bought care.ai to bolster its healthcare IT solutions.
Sustainability Driving Deals
Sustainability continued to be a driving force behind M&A deals in 2024. Brands acquired sustainable companies to align themselves with consumer demand and regulatory pressures. For instance, Under Armour's acquisition of UNLESS Collective played the sustainability card and could elevate Plank's persona.
Luxury Sector Consolidation
The luxury sector underwent significant consolidation as conglomerates like LVMH, Kering, and Tapestry expanded their portfolios. These acquisitions allowed companies to achieve economies of scale and reduce competition while bringing high-value luxury assets under one umbrella.
Regional Perspectives
United States
The U.S. M&A market rebounded steadily throughout 2024, driven by technology advancements and energy transition opportunities. Private equity activity made a significant comeback, with notable take-private transactions in the tech sector.
India
India bucked the trend in Asia-Pacific, with deal value surging 66% in the first nine months of 2024 compared to the same period in 2023. The impressive performance marked a reversal of the sharp decline in deal-making that the country experienced from mid-2022 through 2023.
Germany
German M&A activity remained sluggish in 2024, continuing a prolonged slowdown that began in the latter half of 2022.
Challenges in 2024
Despite the overall positive trajectory, challenges persisted throughout 2024. Regulatory scrutiny intensified, particularly in the U.S., leading to longer deal closing times. The upcoming U.S. presidential election added another layer of uncertainty to the regulatory landscape. Economic uncertainty, concerns about inflation and monetary policy, and geopolitical headwinds also contributed to a cautious approach among dealmakers. This caution was reflected in the slower-than-anticipated rebound from 2023's trough.
LOOKING AHEAD: M&A IN 2025 UNDER THE TRUMP ADMINISTRATION
As we turn our attention to 2025, the M&A landscape is poised for significant changes following Donald Trump's return to the White House. The combination of a new administration and improving economic conditions sets the stage for what could be a surge in dealmaking activity.
Regulatory Environment
One of the most significant impacts of Trump's victory is likely to be a shift in the regulatory landscape. The Trump administration is expected to ease regulatory oversight, making it easier for companies to complete mergers and acquisitions.
This could lead to more flexibility in negotiating deal terms and potentially shorter timelines for deal completion. However, the outlook for the tech sector remains less certain. While a change in merger guidelines would boost M&A more broadly, Vice President-elect JD Vance has previously agreed with many of the efforts of current FTC Chair Lina Khan to rein in Big Tech. Accordingly, major tech companies such as Alphabet Inc., Meta Platforms Inc., and Microsoft Corp. could still see their ability to transact constrained.
Tax Reforms
Trump has proposed several tax reforms that could significantly impact M&A activity:
- Ending taxes on stock buybacks
- Reducing corporate income taxes
- Implementing repatriation reform
These changes are expected to leave corporations better positioned for M&A expenditures. The potential reduction in corporate tax rates could mean larger bids for acquisition targets, particularly for small caps, potentially leading to higher valuations.
Interest Rate Environment
Continued interest rate cuts are anticipated in 2025, which could lower the cost of capital and make it easier to underwrite investments. Most pundits anticipate fewer interest rate cuts in 2025 than previously expected, with the consensus now pointing to 2-3 cuts throughout the year. However, the Federal Reserve may adopt a more cautious approach to rate cuts as it assesses how Trump's economic proposals may turn into actual policies. This revised outlook is based on several factors, including, a) persistent inflation, b) the economic uncertainty related to the incoming Trump administration in 2025 introduces new unknowns for the economy, potentially affecting the Fed's strategy, c) labor market resilience, d) the expectation that it would be wise for the Fed to space out rate cuts more widely in 2025 to assess the impact of each cut on the economy, and e) revised projections from many economists who have adjusted their forecasts downward from the four cuts initially projected in September.
Further, former Cleveland Fed president Loretta Mester now suggests "two or three reductions in 2025 seems appropriate," down from her earlier expectation of four cuts. Similarly, J.P. Morgan has revised its forecast from eight cuts to four in 2025, one per quarter.
Sector-Specific Impacts
Technology Sector
The tech industry is likely to see significant M&A activity in 2025. Deregulation could lower compliance costs, free up companies to innovate, and speed up M&A deals—all potential boons for the fast-paced tech industry.
However, as mentioned earlier, there's some uncertainty regarding antitrust scrutiny for major tech companies.
Financial Services
A softer touch to antitrust oversight can reduce barriers to large mergers and unlock lucrative M&A activity for capital markets companies.
The insurance brokerage sector, in particular, is expected to benefit from pro-business policies and continued debt capital borrowing for investment.
Small Caps
Small cap firms could be attractive takeover targets in 2025. Lower corporate tax rates could lead to larger bids for these companies, potentially resulting in higher valuations.
Private Equity and Dry Powder
2025 is set to see record-breaking levels of private equity capital ('dry powder') waiting to be deployed. This substantial amount of available capital, combined with falling interest rates, sets the stage for a major rebound in M&A activity.
Global Perspective
While much of the focus is on the U.S. market, the impact of Trump's policies will likely have global implications. Companies involved in cross-border deals will need to navigate potential protectionist policies and continued scrutiny of foreign investments in sensitive sectors.
Preparing for the 2025 M&A Landscape
As we anticipate a potentially strong M&A market in 2025, what we are hearing is that companies and their legal teams are presently considering the following preparations:
- Strategic Planning: As one prospective client put it, “We are reviewing and updating our M&A strategy to align with the changing regulatory and economic environment.”
- Due Diligence: Due diligence processes are being enhanced to account for potential regulatory changes and their impact on target companies.
- Tax Planning: Founders and owners should stay informed about potential tax reforms and their implications for deal structures and valuations.
- Technology Integration: More so than ever before, we are hearing that given the continued importance of technology in M&A, prospective acquirers and sellers are ensuring they have the plans in place for technology integration in potential deals.
- ESG Considerations: Though it is anticipated there will be some regulatory easing, most people tell us they continue to factor in ESG considerations, as these remain important to many investors and consumers.
- Cross-Border Expertise: International deals should be on the rise – and so we’re being told that companies are building expertise in navigating potential protectionist policies.
- Agility: “We know we need to be nimble,” one corporate development leader of a technology services firm informed. “We anticipate shifts in regulatory focus and economic conditions,” she added.
Encore AMC’s Final Thoughts
As we move from 2024 into 2025, the M&A landscape appears poised for significant activity. The resilience demonstrated in 2024, combined with the anticipated policy shifts under the Trump administration, creates a potentially favorable environment for dealmaking. We hear the same from many prospective clients with whom we are in regular contact. However, it's important to note that uncertainties remain.
The exact implementation of Trump's proposed policies, global economic conditions, and geopolitical factors could all influence M&A activity in ways that are difficult to predict. For dealmakers, the key will be to remain agile, focusing on value creation and strategic fit while navigating an evolving regulatory landscape. As always, thorough due diligence, clear strategic vision, and careful execution will be crucial to success in this dynamic M&A environment. As we look ahead to 2025, at Encore AMC Partners, we feel it is clear that the stage is set for what could be a transformative year in M&A. Whether this potential "perfect storm" of favorable conditions will fully materialize remains to be seen, but companies that prepare now will be best positioned to capitalize on the opportunities that arise – as our prospective clients are doing at this very moment.
Othon "O" Herrera
Othon ‘O’ Herrera has established a consistent record of strong returns over multiple business cycles at the C-level, across a range of industries for companies with up to $625 million in revenue, including navigating complex situations such as those requiring performance improvement, M&A, international expansion, turnaround, and transformation.
He has led M&A as a private equity backed consolidator leading to value creating exits for investors and shareholders. He founded Encore AMC taking the best investment banking practices from M&A firms he has hired throughout his career.
At Encore, Othon chairs the firm’s deal committee, while maintaining a direct presence on all the firm’s deal teams and transactions.
