The $32 billion acquisition just announced by one of the Big Tech companies is notable for a couple of reasons. First, it will be a litmus test of how the new administration’s antitrust regulators approach industry consolidation. So far, they have shown no signs of letting up on taking Big Tech firms to court on antitrust grounds. Second, it took 77 days—almost until the end of the first quarter—for the market to get its first sizable transaction of the year.
Contrary to expectations, M&A transaction volumes are down 40% compared to last year. That trend runs counter to the bullish 2025 outlook issued by market prognosticators after the U.S. elections. Heightened M&A expectations were driven by more than just the “Trump bump” and general sentiment that low taxes and deregulation would be good for business. They are underpinned by corporate strategies, investment trends and economic and technological changes that should cause deal activity to surge.
Transformation and simplification
Large-cap companies are looking to unlock significant value. This is partly in response to shareholder activism, but more broadly because many companies and industries are undergoing transformations that require significant management attention, capital investments and acquisitions and divestitures to drive new leadership and shareholder value. Companies will also continue to rely on strategic M&A and bolt-on deals for classic business growth reasons.
Private equity and cross-border demand
With substantial cash, private equity firms are poised to be a dominant force in the 2025 M&A landscape. There has also been growing interest in cross-border deals as companies seek geographic diversification and to capitalize on attractive valuations in different regions. Tariff threats and trade wars are thus a huge complicating factor for deal-making—even if they might to some degree push businesses to realign their geographic footprints over time.
Tech and AI-driven M&A
Artificial intelligence is becoming a strategic focus, with companies seeking to enhance their competitive offerings and cost positions through technology adoption. Infrastructure investment is focused on data centers and power supply. The most interesting deals could happen at the layer of tech platforms and applications seeking to marry generative AI with enterprise datasets, workflows and innovative services and use-cases across a wide range of industries. Such is the case with the tech deal announced this week to integrate cybersecurity into AI cloud computing.
These fundamentals still prevail and could drive a resurgence in deal activity—but there are several plausible reasons why the boom has not materialized to date:
The economy is blinking orange
U.S. consumer sentiment has dipped significantly over the past couple of months and inflation expectations are up. Business confidence as measured by CEO surveys and large and small business barometers is also showing signs of strain. You don’t have to buy into talk of recession to believe businesses take a more cautious view when they see warning signs of a slowing economy and put deals on hold so they can prioritize other actions and uses of cash.
Market valuations are demanding
The S&P 500 delivered two consecutive years of 20% returns—bringing U.S. stock valuations to historic highs and making acquisitions pricier and riskier. The recent sell-off was a hit to market confidence, and to the value of companies that intend to use their stock as M&A currency. At the same time, interest rates remain high, and the Federal Reserve has paused on cuts. A high cost of equity and debt is a real factor for making the transaction numbers work to produce positive value.
Policy has been unpredictable
This is the factor market watchers cite most often. Businesses want some level of certainty before committing themselves to sizable capital investments or M&A transactions. The administration’s on-and-off approach to tariffs, its warnings of a “detox period” for the U.S. economy, and the many other ways Team Trump is breaking with “business as usual” and asserting executive power makes for a choppier policy and regulatory environment for businesses to navigate, to say the least.
What is also new and notable about the M&A environment is geopolitics. It’s the driving factor for what could be the deal of the year: TikTok. Speculation around a sale of TikTok was prompted by legislation enacted by Congress last year to ban the social media platform on U.S. national security grounds. Ahead of a deadline this April, several consortiums of financial and tech firms have been putting together offers for TikTok’s U.S. business, which could be worth more than $100 billion according to some estimates.
Publicly, TikTok’s parent company and the Chinese government have been resistant to a deal. The Washington Post reported that Beijing would rather see TikTok’s U.S. operations shut down than to allow a sale without securing reciprocal concessions on trade, foreign investment, and technology from Washington.
These are testing times, and for now, many companies are adopting a “wait and see” or “first, do no harm” approach. At some point, caution may yield to pressure, particularly if they see an accelerating pace of deal announcements. To move forward with confidence, they will need to go the extra mile to understand the risks, issues and stakeholders of this changing operating environment and how to address them in a winning M&A strategy.
