Why Could the Return of Merger and Acquisition Activity Push Wall Street Higher in 2025?

It seems as though M&A activity has spent a long time on the sidelines after a blistering start to the decade. Now, as activity appears to be picking up momentum once again in a landscape that’s set to benefit from the deregulation pledges of Trump 2.0, could Wall Street benefit from a mergers revival in 2025?

The pandemic years pushed M&A activity higher in 2020 and 2021, with more corporates and financial sponsors enjoying government stimulus and looser monetary policies. However, the emergence of supply chain disruption, runaway inflation, and the rise of geopolitical uncertainty quickly halted optimism throughout the mergers and acquisitions landscape.

The resounding US Presidential election victory of Donald Trump may prove to be a catalyst for the turning of the tide in terms of the M&A cycle, but could we really be on the precipice of a resurgence?

Riding the Sentiment Wave

Sentiment towards M&A activity is especially high in the Americas, according to BCG’s M&A Sentiment Index.

With the M&A index accelerating from 81 in August 2024 to 91 by January 2025, the clearing skies for mergers and acquisitions have been propelled by boosts to momentum throughout US markets, where expectations of regulatory easing could open the door to a vast number of deals.

With the tech-heavy S&P 500 continuing to build momentum over the past two years, growth in the US software and semiconductor market is a key source of activity driven by the ongoing AI boom.

However, BCG data suggests that improving sentiment towards M&A activity isn’t limited to the Americas. The M&A Sentiment Index has shown an increase from 76 in November 2024 to 84 in January 2025 in European markets, with an emphasis on the continent’s financial services sector.

The Asia-Pacific region lags North America and Europe in terms of sentiment, and the index value of 45 for M&A activity suggests that lingering uncertainty over economic policy remains a sticking point for mergers and acquisitions. However, this outlook may change quickly depending on fiscal stimulus packages to boost the Chinese economy.

According to PwC data, the M&A revival may already be underway. Recent deal-making momentum towards the top end of the market regarding deals of more than $1 billion increased by 17% in 2024, with their average value rising also.

However, PwC warns that the market is awash with mixed signals. Notably, the volume of smaller and mid-sized deals dropped by 18% in 2024, and this could cloud the outlook for M&A activity over the year ahead.

Deregulation as a Catalyst

The return of the Trump administration is set to bring a significant reduction in the hawkishness of the federal antitrust agencies’ M&A enforcement.

While the Biden administration introduced its Merger Guidelines in 2023 which contributed to reigning in transactions through several different means that saw deals like Albertsons/Kroger, JetBlue/Spirit, and Microsoft/Activision Blizzard come under significant scrutiny, Trump’s selection of Andrew Ferguson to the Federal Trade Commission and Gail Slater to the Department of Justice’s Antitrust Division indicates a more relaxed approach to antitrust enforcement.

Fewer regulatory hurdles could be a significant catalyst for M&A activity that has the potential to drive more growth throughout Wall Street without the long-term reliance on AI stock outperformance.

Although the S&P 500 grew 23% in 2024, the tech-heavy nature of the index could cause problems in its resilience should any twists and turns occur during the ongoing AI boom.

As we saw with the disruption caused by China’s DeepSeek AI startup, an overreliance on a single sector for growth can be problematic for Wall Street.

Return of Financial Sponsors

Higher interest rates and increased borrowing costs have impacted corporate valuations in recent years, causing delays to exits and pent-up supply.

This contributed to a $2.6 trillion pile of uncommitted capital within private equity and venture capital as of July 2024 that financial sponsors will be keen to monetize.

This, according to Tom Miles, co-global head of M&A at Morgan Stanley, could pave the way for increased buy-side activity among financial sponsors through take-private transactions in 2025.

While 2024 saw the value of take-private transactions surpass $200 billion, the appeal for companies to go private is growing. Miles suggests that public companies have been increasingly receptive to the prospect of returning to private ownership to foster growth without the pressure of reporting quarterly returns to its shareholders.

Bracing for an M&A Boom

For institutions, mergers and acquisitions form a core component of Wall Street’s overall economic health because they are a key driver of economic activity.

As a high-margin transaction that creates a need for further transactions in the form of loans, credit facilities, and stock issuance, the return of M&A activity to its 2021 levels could help to drive the S&P 500 higher in 2025.

The return of an M&A boom will also greatly benefit institutional investors on Wall Street, who can utilize liquidity solutions to ramp up their arbitrage efforts and tap into the wider market revival.

With expectations for a year punctuated by market volatility high, hedge funds can deploy event-driven strategies to analyze M&A situations for instances of mispriced securities and profit opportunities. This will benefit more agile investors while contributing to the overall success of M&A transactions.

Opportunities in Uncertainty

The geopolitical and macroeconomic landscape across global markets is subject to widespread uncertainty as we enter a new year with plenty of questions left unanswered. Despite this, the outlook appears to be lucrative for mergers and acquisitions activity and the prospect of new opportunities among institutional investors to benefit from major market movements in the US and beyond.

With a volatile year increasingly likely, there will be many chances for agile institutions to profit from the year ahead. In a deregulation-focused landscape, we could see some much-needed fresh sources for growth throughout Wall Street.