At the close of 2024, optimism ran high across Wall Street. After two years of subdued deal activity, many investment bankers predicted a sharp rebound in M&A for 2025. Yet, as the first quarter draws to a close, the anticipated surge has not materialised. Instead, a mix of policy uncertainty, volatile equity markets, and lingering economic pressures has tempered the dealmaking environment.
While the overall value of M&A deals has risen compared to the same period last year, much of this increase stems from a few high-profile transactions rather than broad-based recovery. Alphabet’s $32 billion purchase of cybersecurity firm Wiz and BlackRock’s $23 billion acquisition of global port assets stand out as exceptions in an otherwise sluggish market. Beneath these headline-grabbing moves, the volume of deals has fallen sharply—down almost 30% year-over-year, reaching its lowest point in over a decade.
What’s Holding Dealmaking Back?
One of the most significant factors weighing on M&A activity is the persistence of higher interest rates. The Federal Reserve and Bank of England’s unanimous March decisions maintained their benchmark rates at 4.5%, extending the period of elevated borrowing costs that has constrained dealmaking since 2022. With economic uncertainty still running high, central banks remain cautious about easing monetary policy prematurely. This sustained tightness in financial conditions continues to deter acquisition activity, as companies face both higher financing expenses and greater difficulty securing leveraged buyout funding at attractive terms.
Adding to the uncertainty is the political climate in the United States. The return of Donald Trump to the White House has created fresh concerns for dealmakers, particularly around trade policy and regulatory oversight. His administration’s immediate imposition of new tariffs on Chinese imports and threats of additional trade barriers have forced multinational corporations to reassess supply chains and cross-border investment plans. The unpredictability of potential protectionist measures has made valuation and due diligence increasingly complex, particularly for deals involving international counterparties. Many companies are now adopting a ‘wait-and-see’ approach to major transactions until there’s clearer direction on trade policy.
Market volatility has also played a key role. The S&P 500, a key indicator for US equity performance, has struggled in early 2025, reflecting investor anxiety about the economic outlook. This uncertainty complicates valuations, making it harder for buyers and sellers to agree on fair prices. In a sector where timing is everything, hesitation from corporate boards has led many potential deals to stall or be shelved altogether.
Will it be a Delayed Revival?
Despite the slower-than-expected start, there are still signs that M&A activity could rebound later in the year. Private equity firms, under pressure to deliver returns to their investors, have been particularly active. So far, financial sponsor-backed deals have increased significantly compared to last year, as firms look to deploy record levels of dry powder.
Investment bankers remain hopeful that, as some of the current uncertainties ease, deal flow will accelerate. Yet, for now, the appetite to initiate conversations remains stronger than the willingness to finalise transactions. Many senior advisors suggest that while boardrooms are open to exploring deals, they remain hesitant to commit until there is greater clarity on both regulatory risks and economic conditions.
The sluggish IPO market adds another layer to the silent recovery. Although there have been notable listings from companies like CoreWeave and Klarna, overall IPO activity remains far below the highs seen during the pandemic-era boom. This hesitation reflects broader concerns about valuations and future growth prospects in an unpredictable macroeconomic landscape.
Looking Ahead
As the year progresses, the trajectory of M&A activity will largely hinge on external factors — particularly the direction of interest rates and the stability of equity markets. If borrowing costs decline and corporate confidence improves, many of the deals currently on hold could quickly re-enter the pipeline. However, continued policy uncertainty and regulatory friction may keep a lid on the pace of recovery.
For now, the gap between M&A expectations and reality remains wide. While there is no shortage of companies willing to explore strategic moves, the conditions necessary for a full-scale revival have yet to fall into place. Until they do, dealmakers may need to temper their expectations for a swift return to the frenzied activity of years past.
IB Insights 
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