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For the financial industry, 2024 is ending off on a positive note. Mergers and acquisitions picked up pace throughout the year, and the economic signals indicate that deal-making will accelerate in 2025. This is according to insights from Stephan Feldgoise and Mark Sorrell, co-heads of global mergers and acquisitions in Goldman Sachs Global Banking & Markets.
This article briefly unpacks market predictions for the banking industry in 2025.
What’s behind the projected acceleration?
Several factors have come together to create the market conditions for acquisitions to increase. According to Feldgoise, these include:
- Favorable interest rates, decreasing the cost of borrowing;
- An influx of capital flowing from private equity sponsors to limited partner investors;
- Strategic dealmaking.
2024 saw over half of the world going to the polls, which created a level of uncertainty and increased deal activity by approximately 10%. Experts believe that 2025 could see a similar level of elevation, which holds promise for the industry.
Another element worth unpacking is the role private equity has played in accelerating deal growth over the last year. Taking a long view of the sector, private equity usually comprises 40% of acquisitions in the market, but in recent years, this has slowed down to about 20-30%. This is partly attributed to the struggles businesses have faced in commercializing their operations.
Initial public offerings (IPOs) offer a glimpse into how the business landscape is changing. The stock market has seen fewer businesses going public in recent times, but the winds of change are slowly starting to blow. “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 (mergers and acquisitions)—is a very powerful tool,” Feldgoise says.
Private Equity in 2025
Private equity firms have benefited from the decline in interest rates. According to Sorrell, this has bolstered their capital spend at nearly the same rate as the historical average. This bodes well for deal activity in the coming year. “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.
The majority of this cash flow is dedicated toward acquiring public entities and privatizing these businesses.
Another key indicator that informs this dealflow prediction is the rate of private equity exits. This is currently well below industry average. “That is the place, I think, in 2025 where we’re watching very closely as valuation gaps close,” Sorrell says.
The industry will be keenly watching developments from a private equity perspective, tracking IPOs and exits, which add context to the state of 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,” Sorrell goes on to say.
They’re also interested in monitoring the impact of artificial intelligence in the various industries banks and financial institutions are heavily invested in. These markets include semiconductors, real estate, and technology. AI is a developing area of interest and the impact it has on these industries will have ramifications for investment and acquisition in the future.
Feldgoise says that it “may evolve into more of an M&A market once the companies and the winners become clearer.”
US Presidential Elections and M&A
While global elections have had an impact on mergers and acquisitions, the US elections in November will be negligible. There’s a certain element of volatility that comes with a potential transitioning government, but boards typically take a long view on companies and their valuations.
Fluctuations in the market caused by either Republican or Democrat policies may create a splash in the short term, but over decades, the impact is less than a ripple. Essentially, long-term business strategies prevail over short-term economic policies. According to Feldgoise, “Businesses are generational, multi-decade, and people are thinking that way. That’s why we remain bullish on M&A regardless of geopolitical or regulatory or electoral situations.”
A Global View
In Europe, mergers and acquisitions saw a dramatic turnaround to rally after a sluggish 2023. Sorrel’s analysis concludes that the European market saw major change in just a few months. The market bounced back to the industry “norm” thanks to a spate of transactions between financial institutions and several public companies being acquired by private companies.
A similar pattern has been observed in Australia. Dealmaking increased in 2024, and the same is true of India and Japan. Both corporate and private equity deals have gained momentum in these regions.
Looking at another global powerhouse, China hasn’t yet had the same rate of acceleration seen in its Asian counterparts. But, Sorrel advises, the overall trend suggests that China’s rebound is more of a matter of “when” rather than “if”. Feldgoise shares this view, stating that “it’s just running a few months behind in terms of the general trajectory.”
Healthcare M&A has growing momentum
Healthcare company acquisitions increased last year, and Feldgoise predicts this momentum will persist into 2025. Similarly, technology and consumer industries have pursued growth through mergers and acquisitions, while large energy firms continue to consolidate inventory as part of a significant, multi-year trend.
“Scale is becoming increasingly critical,” he explains. “Whether it’s geographic scale to diversify supply chains and manufacturing, product scale to identify and seize growth opportunities, or financial scale to navigate volatile capital markets, size matters more than ever.”
Looking ahead, the key question is how quickly dealmaking will grow in 2025. Sorrell anticipates that the coming year will present a more favorable environment for substantial transactions compared to the previous year, citing factors such as risk tolerance, financing conditions, regulatory landscapes, and geopolitical influences.
Conclusion
Looking ahead to 2025, the global scene for mergers and acquisitions is undeniably optimistic. With favorable economic conditions such as stable interest rates, increasing private equity activity, and strategic dealmaking, the stage is set for robust growth in deal activity. Across industries, from healthcare to technology and energy, companies are leveraging acquisitions to achieve scale, diversify supply chains, and capture new market opportunities.
Regional dynamics further bolster this positive trajectory. Europe and Australia are rebounding strongly, while Asia shows promise, albeit at a slightly slower pace. Meanwhile, the US remains a hub of stability and innovation, attracting significant investment.
While uncertainties like geopolitical shifts and evolving valuations persist, experts remain confident in the resilience and adaptability of the market. As 2025 unfolds, it is clear that dealmaking will play a pivotal role in shaping the global economic landscape, offering opportunities for growth, innovation, and transformation.
