Sources: Analysis based on data from PwC, London Stock Exchange Group, and Goldman Sachs earnings reports
The merger and acquisition landscape of 2025 presents an intriguing paradox. Despite seemingly ideal conditions for dealmaking, M&A activity has hit an unexpected speed bump, leaving many market observers scratching their heads. Let’s dive deep into what’s happening and why this temporary lull might actually be setting the stage for a significant rebound.
The Numbers Tell a Story
According to the London Stock Exchange Group, the current state of M&A markets shows a concerning trend: deal value has dropped 17% to $292 billion in early 2025 compared to the same period last year. If this pace continues, we’re looking at a projected total of $2.33 trillion for 2025 – a step backward from 2024’s $2.7 trillion. PwC data shows we’re still far from the historic peak of $5.19 trillion reached in 2021 during the post-pandemic boom.
But here’s what makes this situation particularly puzzling: all the traditional ingredients for robust M&A activity are present. Corporate borrowing costs have stabilized, the economy continues to grow, and earnings are on an upward trajectory. Moreover, the business-friendly Republican administration in Washington should, in theory, be creating an environment conducive to deal-making.
The Trump Factor
The return of Donald Trump to the White House has introduced an interesting dynamic into the M&A equation. As noted by Brian Levy, global deals leader at PwC U.S., “Dealmakers and markets are still digesting the outcomes of the elections that took place in many countries during 2024 and the resulting changes to policy direction; in particular, the impact of the new Trump administration in the U.S.”
While his administration is generally viewed as business-friendly, certain policy elements are giving dealmakers pause. The implementation of new tariffs has raised concerns about potential impacts on economic growth both domestically and internationally. These trade policies could potentially fuel inflationary pressures, which might derail anticipated Federal Reserve rate cuts.
Sectors to Watch
Despite the overall slowdown, certain sectors are positioned for significant M&A activity once the uncertainty clears. The industrial manufacturing sector, which saw deals peak at $675 billion in 2021 before dropping to $384 billion in 2024, shows particular promise. Companies like Parker Hannifin, with its $89 billion market cap and robust free cash flow of $3.5 billion, are actively seeking acquisition opportunities to expand their market presence.
According to Trivariate Research’s Adam Parker, the pharmaceuticals and life sciences sector presents another bright spot. Unlike many industries, healthcare companies typically maintain steady demand regardless of economic conditions. Historical data shows that approximately 5% of healthcare companies receive tender offers annually, making this sector a reliable source of M&A activity.
Why This Isn’t a Red Flag
Market experts and investment banks remain optimistic about the prospects for M&A activity in the latter part of 2025. Goldman Sachs’s Chief Financial Officer Denis Coleman recently expressed confidence in the outlook, stating, “There is an expectation that the regulatory burden will be reduced. We are optimistic on the outlook for 2025 and expect a further pickup in M&A.”
Keith Lerner, Truist’s co-chief investment officer, reinforces this view, noting that Wall Street is still eyeing “a big pickup in M&A” and that “the deregulation is still coming. You probably will have a better setup later in the year.”
Looking Ahead
For investors and market participants, the current situation presents both challenges and opportunities. The SPDR S&P Biotech Exchange-Traded Fund, which includes numerous companies valued under $5 billion, could see significant activity as larger players look to acquire innovative smaller firms. In the industrial sector, companies with strong cash positions and clear acquisition strategies might find themselves well-positioned to take advantage of market conditions once the dust settles.
The key takeaway is that while 2025’s M&A activity hasn’t met initial expectations, the fundamental drivers for deal-making remain strong. The combination of stable financing costs, continued economic growth, and potential deregulation creates a powerful foundation for future activity. Once policy uncertainties clear and companies regain confidence in the economic outlook, we could see a significant acceleration in deal-making, potentially leading to a robust finish to 2025 or a strong start to 2026.
In the meantime, both corporate leaders and investors would do well to maintain their strategic focus and prepare for opportunities that will likely emerge as the political and economic picture becomes clearer. The M&A engine hasn’t stalled; it’s simply idling, ready to roar back to life when conditions align.
Sources:
- PwC Global M&A Industry Trends
- London Stock Exchange Group M&A Data
- Goldman Sachs Q4 2024 Earnings Call
- Trivariate Research Reports
- Parker Hannifin Q4 2024 Earnings Call
