M&A activity insights: March 2025

Capital availability enabled balanced US deal activity distribution

The availability of capital has played an important role in sustaining M&A activity in the US, facilitating transactions across various sectors. Technology again emerged as the frontrunner in February 2025, recording the highest deal value. The Federal Reserve’s decision to maintain interest rates at 4.25% to 4.50% also supported debt financing, allowing companies to pursue mid-cap deals¹ despite a cautious economic backdrop. However, the high cost of capital continues to weigh on some CEOs’ decision-making, leading to a cautious approach in certain industries.

Private equity deals remained steady amid strategic adjustments

Private equity (PE) continued to be a key contributor of deals in February 2025, making up 43% of the month’s deal value. With significant capital on hand, PE firms are expected to maintain active dealmaking, particularly in seeking exits. Shifting away from leveraged buyouts, these firms are now prioritizing strategic partnerships, minority investments and smaller, easily integrated acquisitions, reducing the need for borrowing. The strategic adjustments can be attributed to an evolving market landscape that demands greater risk management and operational efficiency.

By targeting smaller, focused investments, PE players are better positioned to preserve capital and limit exposure to high leverage. This approach not only facilitates quicker integration and operational synergies but also strengthens exit strategies by concentrating on long-term value creation. Such recalibration underscores a cautious yet adaptable investment climate, balancing growth ambitions with the shifting economic environment.

Key deal drivers for this month:

• Ample dry powder and corporate cash reserves continue to propel M&A activity.
• Targeted M&A with focus on strategic growth, market consolidation and niche capability enhancement.
• The Fed held interest rates steady; this supported an environment conducive to M&A activity by maintaining the availability of capital at predictable costs.
• Companies are increasingly moving to cloud computing, expanding in the Internet of Things (IoT) domain and facing surging data demands due to artificial intelligence (AI) adoption.
• Steady PE growth is bolstered by persistent advancements in technology integration, private market expansion and confidence stemming from shrinking valuation disparities and rising asset availability.

Additional risks to dealmaking in 1Q25 include:

• Big Tech mega deals might face tougher government checks, risking delays and issues in combining companies successfully.
• It’s essential that businesses navigate the impact of new trade and economic policies under Trump’s administration.
• Economic slowdown concerns, spurred by weaker-than-expected data, pose a risk to dealmaking as they may lead to a cautious investment climate and reduced M&A activity.

Looking ahead

The US M&A market is adopting a wait-and-see approach amid uncertainties surrounding the Trump administration’s economic policies, including implementing significant tariffs. Companies are focusing on cost management and supply chain optimization, preparing for more robust deal activity once clarity returns.

While the US economy began the year with strong momentum, increasing uncertainty around trade and fiscal policies is straining the outlook. The latest EY economic report suggests that economic growth may moderate to a 2% trend rate in the coming quarters, with GDP projected to expand by 2.3% in 2025 and slow to an average of 1.7% in 2026.

However, the anticipated moderation in consumer spending and business growth is being met with strategic workforce planning and a focus on productivity, positioning businesses to effectively manage cost pressures and maintain momentum. The latest EY US economic outlook highlighted a gradual moderation in spending trends with consumption momentum likely to ease from 3.2% YoY in Q4 2024 toward 2% YoY in Q4 2025.