A buoyant M&A outlook for private capital in 2025 is marked by growing sector convergence and stringent focus on value creation.
For 2025, we are expecting the pickup in global M&A activity for private capital which began last year to continue and accelerate, fueled by recent declines in the cost of capital and two industry-specific factors: the growing availability of funds that private capital is looking to deploy and the substantial backlog of portfolio companies seeking an exit. An anticipated emphasis on deregulation and tax cuts from the new US administration could also boost dealmaking in the year ahead.
With valuations remaining high on the back of buoyant capital markets, especially in the US, and interest rate declines slowing, one of the big themes for the year will be the renewed focus on value creation. Funds are becoming more disciplined in looking at operational transformations with enough upside to justify hefty valuations. Opportunities increasingly beckon at a time in which many large companies are focusing on their core businesses and are looking to optimise their portfolios, at times carving out sizable business units to divest in the process.
A second emerging theme is sector convergence in M&A transactions. We are increasingly seeing investments by private capital players into companies and projects that cut across industries. One example is the new nexus between infrastructure, energy and technology, which is being fueled by the AI transformation; technology companies are looking to tap into new sources of energy to power the servers in data centres they need to run huge AI data models. Another example is tie-ups between consumer health companies and fintech firms to better harness health data.
We expect that these types of industry-converging transactions will continue to be prevalent in 2025. We also expect continued consolidation in the private capital industry itself, as the largest players look to bulk up across all asset classes, both equity and debt. Increasingly, as the largest funds get larger, midsize funds are having a harder time raising new investment unless they have particular niches.
