Global Deal-making is Expected to Gain Momentum in 2025

Economic

Summary:

The pace of mergers and acquisitions around the world gained momentum this year...

The pace of mergers and acquisitions around the world gained momentum this year, and there are signs that deal-making will accelerate in 2025, say Stephan Feldgoise and Mark Sorrell, the co-heads of the global mergers and acquisitions business in Goldman Sachs Global Banking & Markets.

There’s been a “gradual crescendo of factors” behind the rise in acquisitions, Feldgoise says in an episode of Goldman Sachs Exchanges. Those factors include: a decline in borrowing costs, a drive from private equity sponsors to return capital to their limited partner (LP) investors, and corporate repositioning in the form of strategic dealmaking. While the uncertainty from a rush of major elections around the world sparked market volatility, deal activity increased about 10% this year and may rise by a similar percentage in 2025, he says.

The conditions for private equity activity are becoming more solid. Historically, those deals have comprised almost 40% of the market for acquisitions, but recently it’s been closer to 20-30%, Feldgoise says. Part of the reason for the decline is that it’s been more challenging to sell and monetize business and return to the market. IPOs have been more constrained, but that may be changing.

Global Deal-making is Expected to Gain Momentum in 2025_1

“For sponsors to feel the confidence to put their assets into the market — the dual track, as we call it, which is equally pursuing an IPO at the same time as M&A — is a very powerful tool,” he says.

Interest rates have declined, but there’s been some “psychological adjustment” in markets because rates had been so low following the financial crisis, Feldgoise says. Private equity sponsors benefited from rock-bottom rates and have had to adjust their models as valuations conform to a different paradigm.

“The world got used to free money for well over a decade,” he says. “If you look at the level of absolute rates now, it's still relatively low if you look over 30 years or 40 years or 50 years.”

Will private equity deals increase in 2025?

At the same time, private equity firms are deploying capital, after a decline, at a rate closer to historical average, Sorrell says.

“There's a good number of firms saying their rate of deployment is on plan or even slightly ahead of plan versus where they were at the beginning of the year,” he says. A substantial amount of that capital is going into deals to take public companies private. Private equity exits, meanwhile, are well below historical levels.

“That is the place, I think, in 2025 where we're watching very closely as valuation gaps close,” Sorrell says. It will be important to monitor the state of the IPO market and rate of exit transactions, which he says will be key to unlocking more deal activity.

“The big difference from this time last year is how quickly the rate of deployment has improved both in traditional private equity and infrastructure,” he says. “Digital infrastructure is a great example where there's been an incredibly active deployment of capital around the world.”

Feldgoise says they spend a lot of time in boardrooms talking about how generative AI will ripple through the economy. It’s a topic that touches on everything from semiconductors to real estate and to the additional power needed for data centers. While it’s not likely to be a major part of the market for acquisitions, the environment may change as AI matures and it becomes clearer how to value these companies.

“It may evolve into more of an M&A market once the companies and the winners become clearer,” he says.

How will the US election impact M&A?

Though election uncertainty caused an increase in market volatility, corporate executives tend to take a very long perspective. “Boards think in decades,” Feldgoise says. While an administration’s policies and the economic cycle have an impact in the shorter run, they tend to have less of an impact in overall, long-term strategic activity.

“Businesses are generational, multi-decade, and people are thinking that way," he adds. "That's why we remain bullish on M&A regardless of geopolitical or regulatory or electoral situations.”

European mergers and acquisitions increased sharply in 2024 after a muted year for deals in 2023 amid slow economic growth, Sorrell says. “Within the space of a few months, we've gone to a very much more normal rate of dealmaking in Europe,” he says. He points out that there has been a wave of transactions among financial companies and an increase in deals taking public companies private.

Australian dealmaking has rebounded in a similar fashion to that of Europe, Sorrell says. “The other bright spots in Asia are India, which remains very, very strategic for many of our clients, both corporate and private equity, and Japan as well,” he says.

Transactions in China have yet to accelerate amid slower economic growth. “With that exception, my own view is that Asia is trending in the direction Europe has been trending,” he says. “It's just running a few months behind in terms of the general trajectory.”

Feldgoise says the US, meanwhile, has benefited from perceived stability, energy supply, and onshoring of manufacturing and investment from the government in certain sectors. He says there’s been an “incredible focus” from companies looking to tap into the growth in the US.

Healthcare M&A has growing momentum

Acquisitions among healthcare companies grew last year, and Feldgoise says that momentum will likely continue in 2025. Technology and consumer firms have also been among the sectors looking for growth through dealmaking. Large energy companies have been acquiring inventory in a major, multi-year wave of consolidation.

“Scale is increasingly more important,” he says. “Scale across geography for diversification of supply chains and manufacturing. Scale across products for being able to understand where growth might be and being able to capture those market opportunities. Scale for financing and balance sheet heft in stormy financing or capital markets.”

The main question now is the rate of dealmaking growth in 2025, Sorrell says. “The next 12 months will be a better environment for, particularly, large deal making activity than the previous 12 months, because of [the] risk appetite, financing environment, regulatory conditions, geopolitical conditions,” he says.

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