Improved U.S. Deal Market: Latest EY M&A Outlook
The forecast for Mergers & Acquisitions (M&A) activity in 2025 is showing a slow start to the year, according to recent data from EY and the EY-Parthenon Deal Barometer. Predictions made in November 2024 indicated a 10 percent increase in M&A activity for 2025, following a 13 percent growth in 2024. Private equity was expected to see a 16 percent rise in 2025, while corporate M&A was anticipated to grow by 8 percent.
However, the market seems to have entered a cautious phase in February 2025, with a decrease in the number and total value of deals over $100 million. Deal volume fell by 5.9 percent year-over-year and 19.5 percent from January 2025, while the combined deal value dropped by 53 percent year-over-year and 34 percent month-over-month. Large deals over $1 billion saw a decrease in dollar value by 59 percent, indicating a preference for selective mid-market activity.
The current slowdown in M&A activity is attributed to companies carefully evaluating the impact of trade policies and economic trends before pursuing significant mergers or acquisitions. This careful approach has led to a preference for bolt-on acquisitions, allowing for strategic growth without committing to larger investments. Despite the current cautious stance, there is optimism for increased M&A activity once market conditions become more favorable.
In the forecast for 2025, EY Chief Economist Gregory Daco mentioned that U.S. deal volume is expected to rise by 10 percent, building on the previous year’s 13 percent growth. The positive outlook is driven by sustained economic activity, decreasing interest rates, pent-up demand, and reduced valuation gaps. The deregulation efforts by the Trump administration provide an upside risk to the forecast.
Feedback from the CEO Outlook Survey revealed that CEOs and institutional investors have a positive outlook for corporate M&A and private equity activity in 2025. There is a clear link between higher CEO confidence and a desire to engage in transactions. The rebound in U.S. deal activity indicates that after facing fluctuating dealmaking trends in recent years, the market is showing signs of stabilization.
Looking ahead, the U.S. economic outlook by the EY Macroeconomics team foresees consumers and businesses adopting a more prudent approach to spending due to elevated costs and interest rates. While lower-income households are exercising spending restraint, higher-income families are spending more cautiously. The forecasted real GDP growth is expected to ease to 2.0 percent in 2025, amidst an environment of policy uncertainty.
In conclusion, the M&A outlook for 2025 suggests a cautious approach by businesses in light of economic uncertainties. The potential for increased deal activity remains contingent on favorable market conditions and regulatory developments. As businesses navigate through a landscape of evolving economic trends, strategic decision-making is crucial in determining the M&A landscape for the rest of the year.
