The U.S. mergers-and-acquisitions market is expected to have another banner year in 2025, with the overall number of deals worth at least $100 million projected to rise 10% from this year’s level, according to the newly released EY-Parthenon Deal Barometer.
The private equity market is expected to be particularly hot next year, with 16% more transactions than in 2024. Corporate M&A activity is anticipated to grow by 8%.
Deal activity grew even faster in 2024 than the forecast for next year. The number of deals through September was up 17% from 2023, although momentum has stalled during the fourth quarter and the increase will be an expected 13% at year-end.
The analysis focuses on U.S. deals, excluding real estate deals, that are publicly disclosed and have a value of more than $100 million. The analytical framework considers factors such as GDP growth, corporate profits, corporate bond spreads, changes in short- and long-term interest rates and CEO confidence.
The market has been volatile in both directions for years. Deal volume surged 92% in 2021 following the height of the Covid-19 pandemic in 2020. Then came a significant retraction in 2022 and 2023, when deals fell a cumulative 49% after The Fed began its aggressive policy tightening to combat high inflation. The cost of capital rose, economic uncertainty and geopolitical strife increased, and valuation uncertainty was prevalent.
Things look much different now. The EY macroeconomics team foresees interest rate cuts at every other Fed meeting in 2025, for 100 basis points. “Given robust but gently decelerating economic activity, strong productivity growth and softening inflation, we continue to anticipate measured monetary policy easing,” EY wrote in the report.
The barometer expects about 1,170 deals in 2025, compared with 1,080 this year. However, with the direction of policy uncertain, there are various scenarios. In its most pessimistic scenarios, where GDP growth and corporate profits are weaker and inflation and interest rates are both hotter, the barometer calls for just 5% growth for corporate deals next year and a 3% decline in PE deals.
The number of PE deals is anticipated to be about 440 next year, after an expected 380 deals by the end of 2024. The “valuation disconnect” — the overestimation of values and misjudgment of market realities, which is one of the primary impediments for the PE M&A market — “is beginning to narrow enough that an increasing proportion of transactions is reaching the finish line,” EY wrote.
Over the last 20 years, EY said, there’s been an 82% correlation between PE M&A activity and GDP growth, corporate profits, corporate bond spreads, and short- and long-run interest rates.
