M&A in 2025: Deal or No Deal?

Introduction

At the end of 2024, many market commentators claimed that the stars were aligning for mergers and acquisitions (M&A). After two years of muted dealmaking, a flurry of deals was expected to follow the inauguration of US President Donald Trump. While we have seen some transactions complete in 2025 and we notably saw a pick-up in deal values in March, M&A volumes year to date are lower than the same period in 2024. Specifically, announced US deal value of US$111 billion in the first quarter represented a 33% year-over-year decrease.¹ This is largely the result of stock market falls, tariff flip-flops and macroeconomic uncertainty created by Trump’s second administration. In this paper, we assess what it would take for pent-up M&A demand to materialise, as well as where in particular we expect potential opportunities to arise.

What are we waiting for?

Greater macroeconomic visibility remains the key condition for M&A. The uncertainty and volatility we are experiencing at present is thus the prime reason companies are currently holding off on deals. The market expected more positive policies from the Trump administration, but since his inauguration, he has dominated headlines, predominantly in relation to tariffs. It is hard to imagine that the current rate of newsflow and related uncertainty can or will continue for the duration of his term, but even if it did, it is possible that the market will eventually become inured to volatility.

It is also important to stress that we do not necessarily need a bullish market scenario to see a resurgence in M&A. Rather, we need less volatility and some level of agreement on macroeconomic variables for dealmakers to have confidence in their deal forecasts. That could be an environment characterised by some tariffs and lower growth, but consistency is crucial for deals to transact. There is no doubt that companies want to do deals as there is a lot of cash on the sidelines (both corporate and strategic acquirers and private equity (PE) and financial sponsors), but many are waiting for the dust to settle before making big decisions.

A new administration, a new approach?

With this in mind, the enthusiasm we saw about M&A in the run up to Trump’s inauguration, stemming from the expectation that the stringent antitrust regulations that characterised President Biden’s tenure would be loosened, is perhaps unsurprising. Under Biden, the Federal Trade Commission (FTC) not only blocked horizontal deals – referring to mergers between firms that compete in the same way, the primary goal of which is generally to increase market share – but also vertical deals – typically between two companies operating at different stages of the supply chain within the same industry. To take just one example, Amazon attempted to buy iRobot, a robot vacuum cleaner company – considered a vertical deal – but it was blocked. Perhaps more revealingly, we do not believe this deal would have been prevented from happening by any other Democratic or Republican administration.

Further, under Biden, there were instances when companies were targeted because of their past behaviour. Take, for example, Amgen, which tried to acquire Horizon Therapeutics. Although there is no overlap – horizontal or vertical – between the two companies, the FTC sought to block the deal based on Amgen’s conduct with unrelated products. The FTC quietly settled the case, but crucially, this process led to significant delays and a notable cost burden for Amgen, arguably also serving as a deterrent for other firms considering mergers or acquisitions. In other cases, we saw delayed deals costing firms hundreds of millions of dollars in legal fees, as well as creating uncertainty.

While we do not believe we are going back to the 1980s which, under the leadership of former US president Ronald Reagan, were extremely favourable towards deal-making and acquisitions, we expect to experience a step change under Trump compared to the previous administration. We saw the clearest signs of this in April 2025 when Capital One's US$35.3 billion purchase of Discover Financial Services was approved. Together, the combined firms will become the eighth-largest bank in the US.² This deal, which involves some significant overlaps in subprime credit cards, was highly likely to be opposed by the Democratic government and we therefore see it as confirmation of less stringent antitrust regulation under Trump. That’s not to say that every deal has gone or will go through, however. HPE sought to buy Juniper but the horizontal nature of the deal led to it being blocked. In our view, this was a textbook anti-competitive deal.

Further, from an investment point of view, we see it is a good sign that not all deals are being approved, as it means that positive spreads are maintained. New head of the FTC Andrew Ferguson made it clear that if a deal is anti-competitive, it will likely still be blocked, but if it is not problematic, it will be dealt with quickly, a major shift from the previous four years.

Private deals: The battle to finance larger deals

Our belief that it is tariff uncertainty and the resulting market volatility, rather than the antitrust environment, which is holding back M&A is further substantiated by the dynamics we are observing in private markets, namely larger companies acquiring private companies.

Specifically, in recent weeks, Alphabet acquired Wiz for US$32 billion, Constellation acquired Calpine out of bankruptcy for US$16.4 billion and Worldpay acquired a unit of Global Payment for US$24 billion. Private deals are often easier to negotiate and price because the board does not have to take into account a stock price, which can move as a result of market volatility, as well as company fundamentals. This is particularly important given many public company boards are fixated on selling at a premium to the last stock price or securing a price above the stock’s 52-week high, or else they will reject an offer.

As noted above, this dynamic is concentrated on the largest companies, specifically those with earnings before interest, taxes, depreciation, and amortisation (EBITDA) of US$100 million and above – also known as the upper middle market. These large borrowers with multi-billion-dollar debt issuances previously had to go to the broadly syndicated loan (BSL) market for financing. Today, the flood of capital to the largest private credit funds has created a choice for large borrowers: they can either continue to finance their M&A deals publicly (via the BSL market) or fund them privately (via upper middle market private loans). Unsurprisingly, pricing and terms in the upper middle market tend to be highly correlated with the BSL market.

In contrast, smaller transactions have not seen this push-pull dynamic between public and private credit because smaller companies only have the private market to finance their deals. As a result of this difference, the yield pick-up of core middle market direct loans to the broadly syndicated loans has increased to 245 basis points (bps) as of December 2024 compared to the typical 100-125 bps historical average.³

Furthermore, we have seen a dearth of exits for PE-owned companies over the last three years because sellers (PE funds) have not been willing to accept what buyers are willing to pay for their assets and are consequently holding out for better deals. As a result, private firms are currently sitting on record levels of deployable capital to pursue transactions. Further, we are seeing limited partners (LPs) pressuring private equity general partners (GPs) to do deals and to put their capital to work. While private equity deal activity – both acquisitions and exits – has been depressed in recent years compared to the heady days of 2021 and prior, there is well over US$1 trillion of capital that needs to be put to work in deals. We expect that this dry powder will be increasingly deployed in PE sponsor-to-PE sponsor deals, especially as PE firms can close the gap on the current buyer-seller pricing disconnect, as well as transactions from family business owners to first-time PE sponsorship and transactions involving strategic buyers (typically companies and not PE firms). This is in addition to public-to-private takeouts as the public markets present opportunities to buyout firms.

Healthcare: Cash-rich and deal-ready

Looking ahead to where the opportunities might lie, aside from good company, bad management, which is an evergreen theme for M&A, we will be closely watching Healthcare, a sector which we expect to be particularly active. Over the last few years, healthcare companies have generated significant cashflow, and many of them are itching to spend it. A good example of this is Pfizer, which generated approximately USD 35 billion⁴ from developing the COVID vaccinations, and the firm now has drugs running off patent. We saw Pfizer buy several start-ups, principally single-drug biotechs, during the Biden administration. These were generally uncontroversial deals with no real legal mechanism under which they could be legitimately blocked.

What we have not seen is large-scale healthcare consolidation, or more specifically, large pharma companies buying mid-sized pharma global distribution companies which are active in many fields. Healthcare services, such as insurance providers and hospitals, were also extremely politically sensitive under Biden. Under Trump, we believe Healthcare deals are more likely to be accepted, or for some remedy to be developed that the regulator is willing to accept.

Technology: Beyond the giants

In recent years, we have also seen M&A in the Technology sector temper down, though admittedly not to the same extent as Healthcare. While M&A in Healthcare is primarily motivated by cost-cutting, it is typically driven by growth in Tech. There continues to be significant debate about Big Tech – referring to giants such as Facebook, Google and Amazon – under Trump, namely whether they can do more deals. We think it likely they will struggle to make many sizable acquisitions.

With that said, even if we exclude the Magnificent Seven, that leaves a lot of very large companies that can still do M&A. IBM, for example, recently completed the acquisition of Hashicorp, a strategically important deal given IBM’s very low growth and the need to acquire more innovative companies to return to growth. In short, there are a number of USD 100 billion-plus tech companies that we believe are eager to do M&A.

Beyond US borders

While the US serves as the epicentre of M&A activity, and we therefore expect much of the action and opportunity to take place there, we also anticipate M&A activity in other regions.

In Europe, former president of the European Central Bank, Mario Draghi, authored a 2024 report in which he emphasised that European companies lack competitiveness, largely owing to overregulation. In addition, Ursula von der Leyen, head of the European Commission, has repeatedly stated that Europe needs to develop its own champions, equivalent to the US’s Google, Nike or Goldman Sachs. To achieve this, antitrust laws will need to be loosened, even if that means giving a company market share that would traditionally cause anti-trust problems.

We are seeing banks in Italy responding to regulators’ calls for consolidation. Unicredit, in particular, is seeking to expand into Germany in a bid to become the ‘pan-European banking champion’, but the challenge is many banks want to be the buyer rather than the seller.

In credit markets, larger players’ attempts to acquire smaller and medium-size banks has created a positive backdrop for spread compression opportunities, particularly as larger banks tend to have higher ratings and tighter credit spreads. Banks’ focus on improving return on equity (ROE) in order to become a more attractive acquisition target has also led to banks considering greater usage of significant risk transfers (SRTs), a form of securitised credit risk sharing.

In the US, Healthcare and Technology tend to be the most active sectors for M&A because that is where much of the greatest innovation happens, as well as where there are the most cycles. We also believe pharma consolidation in Europe would make sense given there are several large pharma companies which, through M&A, could grow faster. Further, the Technology sector in Europe has several stale companies, such as gaming names, travel booking companies and publishers, which could significantly benefit from the deployment of artificial intelligence (AI) as a means of increasing innovation and efficiency.

Japan’s M&A renaissance?

Turning to Asia, Japan was one of the only countries where there was an increase in M&A in 2024. There, we are seeing corporate reforms playing out, which are making Japanese companies increasingly shareholder friendly, and this is leading to growing interest from private equity firms in particular. We recently saw the sale of Japanese system integration company Fuji Soft to KKR, a US-based private equity firm. Deals involving high-profile, household names such as car manufacturer Nissan and Seven & I Holdings, the parent company of 7-Eleven, have had negative outcomes, but we believe beyond these, the outlook for M&A in Japan is positive.

Unsolicited acquisitions: A riskier business

In addition, we have observed a notable increase in unsolicited or hostile M&A – when one company attempts to acquire another against the wishes of the target company's management and board of directors – which we expect to remain a key theme this year. This tends to occur when there is pent-up demand and a buyer is eager to transact while the seller is reluctant to sell. These situations tend to be high risk, high reward for investors like us because there is no binding agreement, there can be counter bidders and the deal can fall through at any point.

At the present juncture, we believe the opportunity for merger arbitrage investors is particularly attractive given wider spreads and increased risk, especially in the leveraged buyout (LBO) space.

Conclusion: The stars will align

In summary, we believe many of the conditions necessary for M&A to materialise remain in place – a less harsh regulatory environment, pent-up demand and growing appetite in certain sectors and geographies – but the key to unlocking this potential will be a more predictable macroeconomic environment. Many companies at present have money burning a hole in their pockets. They are holding off on spending it, but we do not doubt that it will happen at some point.

1. Source: UBS US M&A Review: 1Q25.
2. Source: Capital One, Discover deal approved by US bank regulators | Reuters
3. Source: LSEG. Data as of 12/31/2024.
4. Source: SOMO-Pharmas-Pandemic-Profits.pdf