Introduction
M&A activity has always been a response to changes in the economy but the last two years have provided the most challenging period in terms of fluency of activities and markets. .from 2021 and 2022, where a great number of deal was signed due to state stimuli and low interest rates, there was a sharp decline in the M&A market in 2024. However, getting close to the year 2025, possibilities of the revival of the classical economy are on the horizon. According to Deloitte Corporate Finance (DCF) M&A Outlooks, however, there are grounds for optimism as we enter the next year while expecting macroeconomic volatility.
What Happened in 2024?
The M&A market took a hit in 2024, driven by high interest rates, geopolitical tensions, and regulatory scrutiny. Data shows that the deal activities reduced to 37% in the US and to 45% internationally in the first half of the year. Businesses revalued their approaches; emphasis was made on the main engagements as opposed to value added propositions. The recent failure of three regional banks in early 2024 increased this concern and the possibility of a recession in the US. But by the mid-year, signs of recovery began to show as inflationary pressures eased, the rates of increase in interest rates reduced and the performance of the stock market began to enhance.
Cautious Optimism for 2025
However, it illustrates that capital costs are to remain high and will only decrease gradually in 2025. The Federal reserve has disclosed possibilities to reduce interest rates thus encouraging suitable lending conditions. Private equity looks particularly promising right now, and a great amount of money is ready to be invested. Better credit terms mean that the middle market companies will be able to more easily secure debt to finance increases in M&A activity.
AI is also getting buzz as another area of focus for due diligence in future deals as businesses are keen on learning the strategic use of AI to increase efficiency and foster innovation.
Lending and Debt Markets Outlook
Lending conditions in 2024 were tough, with banks cautious about new deals. However, as the year progressed, lenders became more confident, and credit spreads began to tighten. Looking ahead, lending is expected to become more accessible, particularly for middle-market companies, as banks solidify their balance sheets and the private credit market continues to evolve.
The Bottom Line
The M&A market in 2025 will likely be shaped by improving capital markets and a more favourable lending environment. Although challenges remain, the signs point to a resurgence in deal activity. The focus on AI, coupled with the easing of interest rates, will open up new opportunities for companies looking to grow through strategic acquisitions.
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