Deals are still getting done, but today’s M&A market demands sharper strategy, tougher trade-offs, and bolder leadership.
A turbulent start to 2025
The year began with cautious optimism for a rebound in mergers and acquisitions. But unexpected shifts quickly tested dealmakers: volatile financial markets, geopolitical tensions, tariff uncertainties, and stubbornly high interest rates.
The result? Global deal volumes fell 9% in the first half of 2025 compared with last year, yet deal values rose 15%. The trend reflects fewer but larger deals — many focused on resilient, cash-generating businesses or service companies less vulnerable to tariffs and trade frictions.
Despite the turbulence, dealmaking hasn’t stopped. In fact, 51% of US companies are still pursuing acquisitions, underlining how essential M&A remains to transformation, reinvention, and long-term competitiveness.
The new realities for dealmakers
• Uncertainty is the new constant
The post-pandemic years have swung between extremes: standstill, rebound, record highs, and now caution. Leaders can no longer “wait out” uncertainty — they must build strategies that assume it’s here to stay.
• Capital allocation is tougher than ever
With capital more constrained, executives face a sharp trade-off: invest in acquisitions, or double down on technology — particularly artificial intelligence. Big Tech alone is pouring hundreds of billions into AI infrastructure this year. For many others, this means smaller, more targeted deals, partnerships, or carve-outs to balance risk and preserve balance sheet strength.
• AI is reshaping deal strategy
Artificial intelligence is both a risk and an opportunity. Acquirers risk overpaying for businesses soon to be disrupted, but they also have the chance to buy capabilities that drive transformation. Already, capability-driven deals in tech and energy are leading activity. As one CEO survey found, 40% of leaders believe their companies won’t survive the next decade without reinventing around AI.
• Valuations diverge
Deal values are climbing, driven by megadeals (36 announced in the first five months of 2025 vs. 31 last year). Yet median multiples have slipped to 10.8x EBITDA, down 14% since late 2024. Larger companies — more exposed to tariffs and slower growth — are seeing sharper declines.
• Geography matters more
While global deal activity is muted, India and the Middle East stand out with double-digit volume growth. In the Americas, deal values surged 26%, with most capital staying within the region. Many investors now prefer domestic or regional plays over riskier cross-border transactions.
What’s driving the market now
- Interest rates: Long-term rates remain elevated, even as central banks loosen policy. This makes financing costlier and fuels caution.
- Government debt: Rising public debt in OECD countries is straining growth and keeping pressure on rates.
- Private equity exits: PE firms are sitting on aging portfolios, with more than 30,000 companies still on the books. Exits are slowly picking up, but the backlog remains a drag on overall deal flow.
Sector snapshots
- Gaining ground: Aerospace & defense, chemicals, asset & wealth management, power & utilities.
- Losing momentum: Retail & consumer, pharmaceuticals, automotive, industrials.
- High focus: Technology remains the most active sector, with banking and utilities also seeing large transactions.
- High focus: Technology remains the most active sector, with banking and utilities also seeing large transactions.
Notably, pharma, once an M&A leader, is struggling under the weight of pricing reforms, tariffs, and regulatory headwinds. Meanwhile, defense is drawing fresh investor interest amid rising global security budgets.
Winning strategies in today’s market
- Flight to quality: Strong businesses with clear growth plans are still commanding premiums. Weaker assets are struggling to find buyers.
- Stay thematically anchored: Focus on long-term trends like AI, climate, demographics, and supply chain resilience — not short-term market noise.
- Geography with intent: Reassess supply chains and cross-border dependencies. Many dealmakers are prioritizing regional or domestic moves.
- Scenario planning: Build models for multiple outcomes, especially in tariff-sensitive sectors. Plan for both upside and downside.
- Value creation from day one: No margin for error. Define and execute growth, cost, and integration plans early.
- Execution discipline + agility: Stick to principles, avoid overpaying, and be ready to pivot fast when conditions shift.
Outlook for the rest of 2025
Uncertainty isn’t going away. The drivers may change — interest rates, tariffs, geopolitics, regulation — but volatility is here to stay. Deals will continue to get done, particularly for high-quality assets and strategically critical capabilities.
For today’s dealmakers, the winning formula is clear: lead with strategy, not fear. Be bold, plan for uncertainty, and move decisively when opportunities align.