2025 M&A Market Outlook: Key Trends and What to Expect
January 21, 2025
The global mergers and acquisitions (M&A) market is gearing up for an exciting year in 2025, with trends pointing to a huge resurgence in deal activity after a challenging period. Mid-sized M&A activity, particularly in the U.S., is expected to play a pivotal role in this recovery, driven by favorable economic conditions, private equity momentum, and evolving sectoral trends.
Here’s a brief outlook of the key trends and their drivers for the year ahead:
A Climate Ripe for Growth
The U.S. mid-sized M&A market stands to benefit from several key factors that are shaping the broader dealmaking environment.
Lower Interest Rates: The rate-cutting cycle that began in 2024 is forecasted to continue into 2025, reducing the cost of acquisition financing. This will enable mid-sized companies to attract buyers and investors who were previously deterred by the high cost of leveraged buyouts.
Bridging Valuation Gaps: One of the biggest hurdles to dealmaking in recent years has been the divide between buyer bids and seller expectations. As equity markets remain robust and interest rates ease, this gap is narrowing, paving the way for more transactions in the mid-market space.
According to S&Ps Global’s latest Market Intelligence report for M&A, several industries are expected to head the charge in M&A activity in 2025, with these four leading the pack:
Technology and AI: The rapid adoption of artificial intelligence and machine learning technologies is creating opportunities for tech firms – from start-ups to established tech powerhouses – to attract acquisitions. These firms are not only innovating but also building critical infrastructure, such as data centers, to support AI growth.
Renewable Energy: The energy transition, spurred by U.S. tax incentives under the Inflation Reduction Act, is driving consolidation in renewables. Firms in this sector are likely to see increased interest as buyers look to expand their clean energy portfolios.
Cybersecurity: With the ongoing migration of business data to the cloud, cybersecurity remains a high-growth area. Cybersecurity firms of all sizes across the value chain are attracting interest from both strategic and private equity buyers.
Defense: Geopolitical tensions and increased defense spending are encouraging private equity investment in defense firms, particularly those innovating in supply chain resilience and next-generation technologies.
Challenges on the Horizon
While the outlook is optimistic, the M&A market is not without its challenges:
Regulatory Scrutiny: S&P’s Market Intelligence Report emphasizes that antitrust concerns continue to weigh on dealmaking, especially for transactions involving strategic consolidation in key industries. Mid-sized firms may face fewer hurdles compared to larger counterparts, but the regulatory environment remains a consideration.
Quality Targets: The recent M&A boom has depleted the pool of attractive targets, making it more challenging for buyers to find well-aligned opportunities.
Macroeconomic Uncertainty: S&P also notes that lingering geopolitical tensions and potential economic volatility could temper deal activity, even as interest rates and valuations improve.
The Path Ahead
Despite these challenges, 2025 is poised to be a year of opportunity for the M&A market in the U.S, particularly the mid-sized market which is expected to be buoyed by a flood of Baby Boomers selling their businesses as they head into a well-earned retirement.
Private equity’s focus on strategic growth and smaller targets, combined with a favorable financing environment, creates fertile ground for increased dealmaking in the mid-sized market. Sectors such as technology, renewable energy, and defense are expected to drive much of this activity, offering aligned mid-sized companies the chance to capitalize on larger trends shaping the global economy.
For dealmakers, the key to success will lie in identifying opportunities that align with these emerging trends and navigating the regulatory and economic landscape with agility. As the M&A market recovers, the U.S. mid-sized segment is set to play a defining role in what should be a bumper year.
With 30-plus years of experience in the mid-sized mergers and acquisitions market, Woodbridge – A Mariner Company is an expert at helping companies manage the full mergers and acquisitions process. Book an obligation-free appointment with one of our M&A experts today.
