M&A activity insights: December 2024

US M&A activity in November remained firm.

November's M&A activity stayed strong, with US$142b spread over 114 deals, consistent with the established pattern of the past few months. November saw seven megadeals (deals that are US$5b and up) worth US$61b, up from five megadeals worth US$35b in the past month, signaling the first significant M&A boost following the US election. With less than one month left, 2024 is set to end on a positive note, with year-to-date (YTD) value and volume up 9% and 16% year over year (y/y), respectively.  

Monthly global M&A trend (2022 onwards)

Deal value (US$ 100m+); deal volume (US$100m+)

Technology, oil and gas, and life sciences remain hot spots for deals   

Technology maintains the top targeted sector position, driven by a strong focus on artificial intelligence (AI) and digital innovation, as well as the expansion of product capabilities. Private Equity (PE) plays a pivotal role in this sector, contributing to one-third of the tech deal value in November. Valuations paid by PE firms continued to drop, but there are signs they are willing to pay more now that rates have fallen. The median EV/EBITDA multiple paid by a financial sponsor for a tech acquisition stands at 12x in 2024, down from 18x in 2023 and 17x in 2022.  

Consolidation is a persistent theme in the US oil and gas industry, with companies actively acquiring assets to enhance production and synergies. Encouraged by President-elect Trump's policies to amplify US oil and natural gas output, the sector is expected to see further consolidation. Shortly after the November 5 election, the industry reported 13 significant deals (each above US$100m) worth US$24b in total, marking a six-month record. 

The life sciences sector also experienced robust dealmaking, with transactions valued at US$16b, the highest in six months. Pharmaceutical companies are well-positioned for bolt-on acquisitions, utilizing their substantial cash reserves to augment their drug portfolios. With looming patent expirations, large pharma firms are rapidly acquiring innovative therapeutic companies to secure their growth trajectory.  

Our M&A outlook for 2025 

While the impetus for M&A has slowed since the past few months, the underlying drivers for deals persist. Additionally, as uncertainty over the US election wanes, economic activity remains robust, and interest rates continue to move lower, M&A activity is expected to gain further momentum in 2025.  

Based on the latest EY-Parthenon Deal Barometer, M&A activity is expected to rise 10% in 2025, following an expected 13% advance in 2024. The pent-up demand is likely to drive significant growth in PE, with an expected 16% increase in deal volume, compared to corporate, which is likely to record an 8% increase. 

PE is poised to capitalize on its 2024 momentum  

PE firms continue to sit on ample uncommitted capital as a result of the subdued activity in 2023. However, over the last few months, there has been an uptick in the deployment of this capital driven by improving economic and financing conditions and better asset valuations.  

Lower interest rates are likely to spur more PE activity in 2025, in part by reducing the cost of financing debt-heavy leveraged buyouts. The Fed’s current cycle of interest rate cuts is diminishing a significant obstacle to successful dealmaking: a valuation gap that emerged due to the Fed's previous aggressive rate increases, implemented post-pandemic to curb inflation. 

_{Will there be regulatory changes under the Trump administration?}

The recent changes to the Federal Trade Commission (FTC) antitrust disclosure rules will increase the demands on chief financial officers (CFOs) and dealmaking teams before filing for merger approvals. However, these updates also provide proactive leaders with the opportunity to prepare in advance and ultimately streamline deal timelines, just as M&A activity is expected to rise. 

The new rules are expected to take effect in early 2025, having been unanimously approved on a bipartisan basis. This bipartisan support suggests that the rules will remain in place even with the incoming Trump administration.  

These rules will also bring more certainty to the review process, which is crucial as we anticipate an increase in deal activity in 2025. The Fed's move to lower interest rates is making deal financing more affordable and alleviating macroeconomic concerns. Additionally, the FTC and the Department of Justice under the Trump administration are likely to adopt a lighter regulatory approach, focusing on remedies to allow deals rather than blocking them outright. This environment, combined with pent-up demand and capital ready to be invested, particularly by PE investors, is expected to result in a surge of new deals. 

Key deal drivers

• Reduced economic uncertainty post US elections 
• Loosening of regulatory restrictions and deregulatory policies under the Trump administration 
• Improved conditions in the financing market 
• Attractive M&A valuations driven by reduced cost of debt  
• Companies’ continued transition to the cloud, growth in the Internet of Things space and rapidly growing data needs from AI adoption

US sector breakdown for US$100m+ deals — YTD

Additional risks to dealmaking in 2025

• Impact of new trade and economic policies under the Trump administration 
• Changes to existing industrial policies, such as the Inflation Reduction Act, as proposed by Trump 
• Continued regulatory scrutiny 
• Economic concerns, such as a weak job market and inflation still being above the Fed’s target  

Looking ahead to 2025 

As we approach 2025, the US economy seems to have achieved stability, marked by solid growth, easing inflation and ongoing monetary easing — all of which are promising signs for the M&A market. However, the upcoming Trump administration introduces policy uncertainty that could influence market dynamics, making strategic timing essential for capitalizing on opportunities in the coming year. 

PE firms are set to emerge as the primary beneficiaries, having experienced the most active deployment in the last six months since the downturn started more than two years ago. The financing markets have played a crucial role, with both traditional lenders and private credit funds vying for deals amid rising risk appetite, strong collateralized loan obligations formation and spreads touching multi year lows. 

Conclusion

November's M&A activity remained firm, with an uptick of mega deals. Overall, the US M&A outlook looks positive, driven by lower interest rates, robust equity markets, resilient debt markets and a narrowing valuation gap, which are expected to create a favorable climate for dealmakers. With these catalysts in place, corporations are likely to view M&A as an integral part of their holistic growth strategies, potentially leading to an increase in M&A activity, especially in sectors such as technology, oil and gas and life sciences.  

Furthermore, the new Trump administration is expected to catalyze this rebound through relaxed regulatory oversight. This shift in the deal landscape suggests a more competitive environment for acquiring attractive targets. This could lead to an increase in deal valuations, which are currently at moderate levels. A return of PE as a key competitor for asset acquisitions may help bridge any lingering valuation gap issues.

Vaishali Madaan, Assistant Director for Markets & Business Development, contributed to this article.