A Look At M&A Trends In An Uncertain Deal Environment
This article was originally published in Law360 on April 14, 2025, and is republished here with permission.
In the best of times, mergers and acquisitions are inherently complex. When uncertain global conditions such as financing hurdles, high inflation, unfavorable interest rates and geopolitical conflicts are added to the mix, the challenges that hinder M&A activity only increase.
Due to these challenges, the U.S. entered 2025 with its slowest M&A period in over two decades. According to recent article published by Reuters,[1] citing data published by Dealogic, there were just 1,172 deals worth $226.8 billion in January and February, which is down a third from last year.
Additionally, according to Insurance Business Magazine, first-quarter 2025 global M&A activity saw 163 deals valued at over $100 million completed — a 22% decline from the 210 deals recorded in the fourth quarter of 2024.[2]
During periods of economic downturn, especially when there’s a possibility of entering a recessionary period, it’s always a thought-provoking time for M&A.
The risks of deal failures escalate. But there is upside to a volatile market. Companies may look to divest assets that are no longer core to their business strategy, which in turn creates openings for other companies to acquire them at appealing prices.
Challenges and Opportunities In M&A’s 2025 Start
As 2024 came to an end, optimism was high for the potential rebound in M&A activity going into this year.
Pro-investment policies like deregulation and tax cuts seemed poised to unlock corporate capital, raising expectations for an increase in deals.
However, as the year unfolds, M&A activity has seen a slow start, with U.S. deal volume declining in the year’s initial months and persistent conflicts involving Canada, Mexico, the Middle East and Ukraine continuing to strain the global economy.
Additionally, regulatory scrutiny has prolonged M&A timelines, adding costs and more layers of complexity to an already intricate process.
Despite these challenges, opportunities persist. A McKinsey & Co. study highlights sustained deal volume at approximately 80% to 90% of levels seen a decade ago, and underscores a shift toward alternative deal types such as joint ventures and alliances.[3]
Interestingly, cross-border M&A has emerged as a bright spot, defying broader trends with higher valuations driven by supply chain realignments and market expansion.
Cross-border deals now account for around 25% of global deal value, with the majority occurring between Europe, the Middle East, Africa and the Americas.
Adapting to the New M&A Environment
Given all the complexities and moving parts, companies and private investors in today’s environment are taking a more cautious and deliberate approach to dealmaking. Below, we identify a few trends being used in this current M&A environment.
Accommodating a Limited Appetite for Risk
In a hectic environment, valuation and price matter. Industries heavily exposed to external factors, such as climate change and election outcomes, are being more cautious when it comes to M&A decisions.
Forward-thinking companies are using machine learning algorithms to look for risks and identify areas that need a deeper look. A methodical process mitigates regulatory and litigation risk.[4]
Selective and Strategic Approaches
Opportunistic dealmaking has given way to more intentional transactions. Programmatic acquirers are known for their disciplined acquisition strategies and are sourcing deals more effectively, while also seamlessly integrating them, prioritizing talent retention and focusing on organizational optimization.
According to EY, M&A using disruptive and innovative alternative strategies may help results more than traditional M&A.[5]
Dealroom also suggests that to maintain a competitive edge in 2025, companies should explore tailored M&A approaches that align with current market conditions, including vertical and horizontal M&A, conglomerate mergers, market extension mergers, and product extension strategies.[6]
Flexible Deal Structures
More companies are adopting flexible deal structures in an effort to mitigate risks and bridge valuation gaps. Some of these approaches include earnout agreements, joint ventures and strategic partnerships.
Escrow and indemnities are also being utilized to allocate funds for unforeseen liabilities, providing more financial security and stability in transactions.
Prioritizing Value Creation
Deals are now aimed at creating sustainable, long-term value by integrating revenue synergies, driving innovation and streamlining operations to achieve economies of scale. These aims can increase the deal’s success and improve stakeholder relationships.
By focusing on value creation, it is possible to can stay a step ahead and maintain the competitive edge.
Embrace of Technology
Technology, particularly artificial intelligence, is streamlining the M&A process. Tools like AI-driven contract review systems and AI-enabled virtual data room platforms are enhancing due diligence, reducing costs and expediting transactions.
Notably, according to Bain & Co., AI is now used in 16% of M&A deal processes and is projected to reach 80% within the next three years.[7]
Conclusion
As we can see as the first-half M&A environment unfolds, adaptability is key. Companies can proactively position themselves for success by thorough risk assessments, considering innovative deal structures and utilizing new technologies.
[1] https://www.reuters.com/markets/deals/dealmakers-wait-see-mode-expect-ma-pace-pick-up-later-2025-2025-03-06/.
[2] https://www.insurancebusinessmag.com/us/news/breaking-news/manda-deals-outperform-breaking-sevenquarter-losing-streak–wtw-531402.aspx.
[3] https://www.mckinsey.com/capabilities/m-and-a/our-insights/uncertainty-in-m-and-a-postcards-from-the-new-normal.
[4] https://mnacommunity.com/insights/ai-in-ma-due-diligence/.
[5] https://www.ey.com/en_us/insights/strategy/how-alternative-m-and-a-strategies-can-help-deliver-strong-returns#:~:text=The%20M&A%20market%20can%20be,dealmaking%20frequency%20for%20our%20analysis.
[6] https://dealroom.net/blog/m-a-trends.
[7] https://www.bain.com/insights/generative-ai-m-and-a-report-2024/.