In the bustling realm of private equity, a palpable shift is underway, one that could redefine the landscape of deal-making in the coming years. Feldgoise asserts, “For sponsors to regain their confidence when thrusting assets into the market—navigating a dual-track strategy, whereby companies pursue an Initial Public Offering (IPO) alongside mergers and acquisitions (M&A)—becomes an astoundingly potent mechanism.” As interest rates recede gradually, the market seems to oscillate in what some describe as a “psychological adjustment.” It’s worth noting that, following the financial crisis, rates had plummeted to astonishing lows.
The era of “free money,” a tantalizing backdrop for over a decade, has left echoes of skepticism in its wake. Feldgoise remarks, “When we scrutinize the current absolute rates, they still appear relatively benign when viewed through the lens of the last three to five decades.” The current market’s nuances compel private equity sponsors to re-evaluate their strategies, aligning values to a new, albeit challenging realm.
Will Private Equity Deals Surge in 2025?
Turning the lens toward the horizon, private equity firms are strategically channeling capital at a pace that mirrors historical averages, as noted by Sorrell. “A significant cadre of firms has reported their deployment rates aligning with, or even slightly surpassing, initial projections for the year.” Here, a noteworthy trend emerges: a substantial chunk of investments is directed towards privatizing public companies, while exits from private equity lag significantly behind historical norms.
“To monitor the impending closure of valuation gaps in 2025 will be imperative,” Sorrell emphasizes. A keen eye must be cast on the IPO landscape and exit transactions, which he believes are pivotal for catalyzing a surge in deal activities. The evolution in deployment rates within both traditional private equity and infrastructure is noteworthy, with Sorrell pointing out, “Digital infrastructure is a glowing example of an area witnessing vibrant capital deployment across the globe.”
The generative AI phenomenon occupies boardroom discussions, with its rippling effects resonating through diverse sectors, from semiconductors to real estate. Though currently not projected to surge in acquisition activity, the landscape may metamorphose as clear leaders emerge within this evolving market. “As the winners solidify, M&A may indeed find itself more in the limelight,” Feldgoise speculates.
The Influence of the U.S. Election on M&A Dynamics
A cloud of uncertainty looms over the approaching elections, often linked to market volatility. However, corporate executives typically adopt a long-range vision. “Boards operate with a decade-spanning mentality,” Feldgoise observes, suggesting that while political dynamics might influence short-term maneuvering, they ultimately exert scant influence on the broader strategic landscape. “Business is generational, stretching over decades; thus, optimism remains firmly rooted in M&A despite geopolitical or regulatory upheavals.”
Following a somewhat muted 2023, the European merger and acquisition scene has rebounded vigorously, according to Sorrell. “In mere months, we’ve transitioned back to a more typical pace of deal-making in Europe.” He cites a wave of transactions among financial institutions and a notable uptick in deals aimed at taking public companies private. Australia mirrors this trend, with its deal-making resurgence echoing that of Europe.
However, the situation in China tells a different story. “Transactions there remain sluggish amidst a backdrop of slower economic progress,” he notes, adding that Asia appears poised to follow Europe’s upward trajectory, albeit lagging by a few months. Meanwhile, U.S. firms benefit from a veneer of stability, enhanced energy supplies, and government-backed onshoring initiatives. Feldgoise points to an “extraordinary focus” on seizing growth opportunities stateside.
The Ascendancy of Healthcare M&A
The healthcare sector has experienced a notable uptick in acquisitions, a momentum expected to carry through 2025. Technology and consumer sectors are also on the prowl for growth through strategic deal-making. Large energy firms, in a sweeping multi-year consolidation wave, are also on the acquisition hunt. “The essence of scale—across geography, products, and financial resilience—is now more critical than ever,” Feldgoise concludes, emphasizing the need for robust strategies amid stormy market conditions.
As the stage is set for 2025, the prevailing question looms: what will the trajectory of deal-making growth look like? Sorrell offers a bullish outlook, stating, “The upcoming year is poised to present a more favorable environment for large-scale deal-making activities than the preceding year, driven by enhanced risk appetite, favorable financing conditions, and regulatory clarity.”
With various sectors on the brink of intriguing transformations, the world of private equity and mergers and acquisitions is undoubtedly poised for a thrilling journey ahead.
