A view on North America by Wilma Jordan
The North American M&A market began to show signs of recovery in Q4 2024. We are optimistic that this resurgence will continue in 2025, resulting in a robust M&A market.
The US economy is feeling more positive than it has for the past two years. Consumer sentiment continues its upsurge, with October showing the strongest monthly gain since 2021, while look-ahead optimism about the economy also reached a three-year high. With the Presidential election behind us, a positive sense of ‘back to business’ permeates the business community, with renewed focus in the C-Suite on revenue growth and bottom-line performance for companies across most sectors.
The interest rate cuts in the latter half of this year, along with the possibility of more cuts in 2025, should help fuel deal making and work wonders in reducing the buyer/seller valuation gap that created a two-year bottleneck for deals getting done. Thus, we anticipate this discrepancy between what sellers want and buyers are offering will dramatically narrow in 2025. Companies emerging from 2024 and poised to show strong revenue growth and expanding margins for 2025 will be rewarded with improving EV multiples and an eager pool of financial and strategic buyers, if and when they go to market.
In the past 18 months, we have seen a vastly reduced number of PE exits due to this very subdued buyer’s market. The mountain of dry powder among private equity firms in the US has reached record levels. Many PE portfolio companies are well past their natural holding periods; these companies either need to be aligned with adjacent players to create synergies, or divested to other companies that can fuel their growth. The combination of dry powder, increased holding periods, and lower interest rates should result in increased PE activity in North America, while well-stocked corporate coffers will also help fuel very healthy buyer competition for prized assets.
Meanwhile, we are well into the first wave of AI anticipation, investment, and realization. Companies and investors alike have come to appreciate that well-designed and purposeful AI tools can be highly effective in complementing and evolving existing business models, rather than posing a near term threat of disintermediation. Business owners are increasingly aware that the only moats they can build around their businesses will result from going deep into a vertical and owning that market.
All these factors will make for a healthier M&A environment in 2025, boosting confidence and sparking a high level of enthusiasm among both buyers and sellers for getting deals done.
The combination of dry powder, increased holding periods, and lower interest rates should result in increased PE activity in North America, while well-stocked corporate coffers will also help fuel very healthy buyer competition for prized assets.
A view on the UK by Richard Vaughan
The UK M&A market showed encouraging signs of recovery in Q4 2024, fostering optimism that this momentum will extend into 2025, setting the stage for a healthier, more dynamic deal environment.
After a difficult 24 months, there is a growing sense of positivity in the UK economy. Consumer confidence is climbing steadily, with surveys in late 2024 showing the highest levels of economic optimism since 2021. With the uncertainty of recent global events beginning to ease, businesses are shifting their focus back to growth, profitability, and strategic positioning, bringing a sense of renewed energy to the corporate landscape.
The Bank of England’s interest rate cuts in the latter half of 2024 – and the potential for further reductions in 2025 – are expected to be a key driver in reviving deal activity. Lower borrowing costs should help narrow the valuation gap that has hampered deal-making over the past two years, encouraging both buyers and sellers to align on price expectations.
Private equity activity in the UK is also showing signs of pick up as we head into 2025. The prolonged period of muted exits and subdued deal flow has created a backlog of PE portfolio companies that are overdue for divestment. With dry powder in the UK and European markets at record levels, alongside improved market conditions, PE funds are well-positioned to capitalize on opportunities in 2025. Simultaneously, corporates with robust balance sheets are expected to fuel healthy competition for high-quality assets, intensifying the demand for attractive opportunities.
We also expect cross border transactions to remain an important driver of activity in 2025 – in 2024 cross border M&A activity involving UK targets increased ~15% vs recent years. Some of that is a function of currency movements but equally a function of economic growth and confidence in key global markets, predominantly the US.
The above is certainly reflected in our own pipeline of business where we have seen a marked pick up in new pitch activity in late Q3/Q4. Many businesses we talk to have been head down for much of 2024 ensuring a return to normalized revenue growth and margin expansion and with that hard work done are now feeling more confident to start strategic conversations.
As we look ahead, we are optimistic on the UK M&A market in 2025 certainly vs 2024 and 2023. Both buyers and sellers are entering the new year with a renewed sense of enthusiasm backed by more confidence in the deal-doing environment.
We also expect cross border transactions to remain an important driver of activity in 2025 – in 2024 cross border M&A activity involving UK targets increased ~15% vs recent years.
A view on UK Private Equity by Marcus Anselm
After a challenging 2023, the UK private equity market showed signs of stabilization in 2024, with new deals projected to close at an estimated £122bn. Political stability in the West, controlled inflation, and declining interest rates have set the stage for renewed activity.
Platform investments accounted for 40% of total deal value in 2024, compared to 45% during 2021’s market peak. The rise in bolt-on acquisitions reflects a strategy of scaling portfolio companies ahead of anticipated exits. Given that many 2021 deals are nearing the typical 3-5 year hold period, exit activity is expected to accelerate in 2025. Supporting this, a Deutsche Numis survey revealed that 84% of private equity firms anticipate increased deal activity, with many planning five to ten transactions in the coming year.
Private equity exits have slowed since 2021, while unrealized assets under management (AUM) have risen to £307bn by 2024. This has heightened pressure from limited partners (LPs) on general partners (GPs) to accelerate distributions, as echoed by an EY survey revealing over 80% of GPs face at least moderate pressure from LPs to boost distributions.
Secondary markets have provided some relief, attracting record investment to create liquidity solutions. Meanwhile, the market remains flush with £139bn in dry powder, ensuring ample capital for deal making in 2025.
The fundraising landscape has been mixed. Mid-market fundraising dipped to £7.9bn in 2023 but rebounded to £10.3bn by September 2024. To sustain investor confidence and attract new capital, private equity firms must deliver strong returns—a factor likely to drive exits and deal activity in 2025.
During the year ahead, we’re expecting to see businesses with diverse leadership teams or a measurable sustainability or social impact story increasingly becoming attractive to private equity investors. A McKinsey report predicts that by 2030, nearly half of UK private equity investments could be classified as sustainable, underscoring the importance of these trends.
Artificial intelligence is reshaping private equity too. Bain research shows 20% of portfolio companies already generate measurable value from AI, with a further 32% of portfolio companies in the development stages. By 2025, deals leveraging AI strategies could deliver extraordinary returns, with 57% of investors anticipating significant value creation within five years. AI is also transforming due diligence, as 70% of investors report walking away from at least one transaction due to AI-related concerns. Currently, AI is considered in 30% of due diligence processes, a figure expected to double by 2027. However, a gap remains between investor expectations and companies’ AI readiness. Our role as advisors is helping to bridge this divide through early preparation with owners and deeply understanding the priorities of the investors.
With favourable market conditions, a surge in bolt-on acquisitions, and mounting pressure to deploy capital and for liquidity, 2025 could well mark a turning point for private equity. For owners, aligning with market trends and leveraging experienced advisors will be key to standing out in an increasingly competitive landscape. Meanwhile, the integration of AI and sustainability themes offers significant opportunities for forward-thinking investors and portfolio companies.
To sustain investor confidence and attract new capital, private equity firms must deliver strong returns—a factor likely to drive exits and deal activity in 2025.
A VIEW ON VENTURE CAPITAL BY SAN DATTA
As we move into 2025, the venture capital (VC) community is looking poised if not for a resurgence, then at least a much better year than the last couple of years.
Going into 2024, hopes had been high that post the operational challenges of 2023, which saw many difficult cost-restructurings across VC portfolio, the improving macro-economic conditions would see an upturn in company performance and valuations. In reality, however, the broader market remained challenging.
At a company level, top-line growth remained muted for many businesses, hovering at 2023 levels, and the cost and capital restructurings had left management teams weary.
From an investor perspective, the market has remained equally difficult. From a fundraising perspective, global ventures funds raised $83bn by Q3 2024, down 13% on the same period in 2023, while from an exit perspective, over 20% of funds said exits were their number one challenge. Unsurprising given a difficult exit environment resulting in exit volumes being down close to 60% against the same period in 2021, and 20% lower against 2022. From an internal perspective, many investors also continued to face difficult repricing discussions and hard conversations with management teams and other shareholders.
Looking into 2025, we feel much more positive about the outlook on both a macro and micro basis. It feels like we will see an increasing bifurcation between the real winners who have shown they can either deliver or return to proper growth, and those which while they have battled through, are left in a more stable but fundamentally low growth state. For the former, they really will have a strong set of options ahead of them.
Large cap enterprise software players’ balance sheets, particularly in North America, remain very well capitalized, and they are keen to buy growth and capability, while many of the sponsor backed software platforms have now got their houses back in order and have returned to the acquisition trail. For the latter, as internal capital structures get resolved and valuation expectations align around buyers and sellers, there will also be increasing exit options for these players.
Looking into 2025, we feel much more positive about the outlook on both a macro and micro basis. It feels like we will see an increasing bifurcation between the real winners who have shown they can either deliver or return to proper growth, and those which while they have battled through, are left in a more stable but fundamentally low growth state.
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