A favorable regulatory environment and almost $3 trillion in uncommitted capital are among key factors that could lead to a comeback for mergers and acquisitions.
Key Takeaways
- A more favorable regulatory environment for M&A activity and stronger capital markets may spur deal making and a more robust rebound in 2025.
- Financial sponsor activity is poised to increase, especially on the sell side, and activity in take-private transactions will likely continue.
- Activists may continue pushing for changes at companies through M&A and corporate separations.
- Notwithstanding the new U.S. administration’s tariff policies, there is interest across global regions in cross-border transactions as economies have grown at different paces, resulting in some attractive valuations and appetite for diversification.
- Certain policies from the new U.S. administration might hinder M&A growth—at least in the short term—but overall the positives should outweigh the negatives.
The rebound in mergers and acquisitions that did not fully materialize in 2024 appears to be on track for 2025. Although mergers and acquisitions increased in 2024 after hitting a low point in 2023, deal volume was lower than expected after private-equity firms delayed selling assets and a challenging regulatory environment hindered the largest deals valued over $40 billion.
Now, however, slower areas of the M&A market such as private equity monetizations, strategic deals and cross-border transactions are now poised for growth: A new U.S. presidential administration could usher in relaxed antitrust and merger guidelines, facilitating deals. At the same time, financial sponsors may consider finally selling the companies or stakes in companies that they acquired in previous years, returning money to investors from funds nearing the end of their lives in order to raise new funds.
Two key drivers will be increased activity from financial sponsors selling companies and a more favorable antitrust environment.
“We have a positive view of the M&A market for 2025,” says Tom Miles, Co-Global Head of M&A at Morgan Stanley. “Two key drivers will be increased activity from financial sponsors selling companies and a more favorable antitrust environment. On sponsors, the average age of sponsor portfolios is historically high and monetizations have to happen to allow for new fundraising. On antitrust, the expectation is that we return to a more traditional and predictable review process and that should spur more activity as companies have more predictable outcomes and timelines.”
Deregulation, increased financial sponsor activity and appetite from well-capitalized companies could spur deal making. However, the impact of the President-Elect Donald Trump administration’s impending tariff and immigration policies is unclear: “These are unknowns that could delay consolidation trends in certain sectors in the short to medium term,” Miles says.
As companies and investors seek clarity on the strength of an M&A rebound in the year ahead, Morgan Stanley’s M&A bankers highlight four key deal-making trends to watch in 2025.
1. Financial Sponsors Reemerge
Muted M&A levels in the past three years, driven by higher interest rates that led to increased borrowing costs and lower corporate valuations, resulted in financial sponsors delaying exits, which has resulted in pent-up supply. In addition to private equity and venture capital’s $2.6 trillion in uncommitted capital as of July 2024,1 there is an ever-increasing inventory of aging private-equity owned assets that need to be monetized.
Number of Private-Equity Portfolio Companies
About half of private-equity portfolio companies are more than five years old, and close to 30% are seven years old or more.
However, financial sponsors have been very active on the buy side, notably through take-private transactions. According to Miles, 2024 marks a banner year for the value of take-private transactions, which reached more than $200 billion.2 “Financial sponsors have had a lot of capital and wanted to deploy it, and public companies have been more willing sellers,” Miles says. A public company returning to private ownership has an opportunity to grow and improve its prospects without the pressure of delivering quarterly returns to public shareholders.
Annual Announced Volume of Take-Privates ($Bn)
For the M&A market to experience a robust rebound in 2025, financial-sponsor activity will need to pick up beyond take-privates. Pressure keeps building for private-equity firms to sell assets and return money to investors; they will need to monetize their assets and return capital to stakeholders as a first step before raising new funds. “Pressure will keep growing and get to point where sponsors will sell,” Miles says.
2. Companies Deploy Their Capital
The more favorable antitrust and regulatory environment expected under the incoming presidential administration may lead to a resurgence in strategic activity in 2025 for deals of all sizes, especially for mega-deals that were hindered by increased regulatory scrutiny during President Biden’s administration, says John Collins, Co-Global Head of M&A at Morgan Stanley. However, uncertainties remain about the incoming U.S. presidential administration’s tariff and immigration policies, he says.
These unknown macroeconomic factors will play an important role in whether buyers and sellers can reach agreement on valuation. “In 2024, a lot of buyers couldn’t underwrite the growth trajectory that sellers were expecting,” Collins says. “While some sectors may be more affected than others by the policies, we still expect that the overall market will benefit from the more favorable regulatory environment, and that corporates with robust balance sheets will pursue capital deployment through M&A.”
The financial sector is likely to see the most regulatory relief, according to John Esposito, Head of Global Financial Institutions at Morgan Stanley. “Easing capital requirements and antitrust laws could spur a lot of bank and insurance consolidation, as well as other M&A activity,” he says.
3. Shareholder Activists Spur Change
Shareholder activism has continued to increase for companies of all sizes in 2024. Part of the growth is coming from top-tier activists targeting large- and mega-cap companies, as activists continued to aggressively pursue board representation. A stronger M&A environment, in which companies can find buyers more easily, should continue to encourage more activist investors to push for changes at undervalued companies, notably through corporate separations.
“Activists may go more aggressively after corporate separations, pushing companies to ‘shrink to grow’ and unlock valuation for shareholders,” says Michael Kagan, Head of Separations and Structured Solutions at Morgan Stanley. “Post-pandemic, there’s been a significant gap between companies with strong and poor operating performance. Companies at the lower end of the curve will be targets.”
4. Cross-Border M&A Continues
In the last five years, the U.S. economy has grown more strongly than economies in Europe and the U.K., which may spur European companies to acquire U.S. companies, to gain exposure to the U.S. market. The U.S. had the highest GDP growth (11.4%) among G7 economies from the fourth quarter of 2019 through the third quarter of 2024, which compared to Eurozone GDP’s 4.6% rise and UK GDP’s 3% gain during the same period.3 “The U.S. has performed consistently better economically, in terms of growth, profit margin and resilience,” says Jan Weber, Head of EMEA M&A at Morgan Stanley.
There’s a financial arbitrage that U.S. companies may find attractive. They may buy into Europe and be tactical about what capabilities they want to acquire.
On the flip side, U.S. companies may look to acquire European companies to strategically expand their footprint and take advantage of the structurally lower valuations of European companies. “There’s a financial arbitrage that U.S. companies may find attractive. They may buy into Europe and be tactical about what capabilities they want to acquire.”
Other regions have also been active, in particular Japan, which introduced a draft of new takeover guidelines in 2023 to promote desirable M&A transactions and shareholder transparency.4 Companies are signaling interest in assets, both domestically and overseas. “Japan has been very active this year and has great momentum, in part driven by the changing regulatory environment,” Weber says. “Japanese companies may also buy into Europe for diversification.”
