Outlook for M&A and Activism in 2025

Predictions for M&A in 2025

The Overall M&A Environment

Many have predicted an M&A boom in 2025 and recent CEO surveys exhibit rising confidence.

Psychology is as important to the merger market as any human endeavor, so one should not discount the power of renewed optimism to be a self-fulfilling prophecy. We expect reality to be more nuanced, however, although 2025 should be a strong year (the usual caveats about fiscal and macro uncertainty aside).

On the corporate side, as in recent years, portfolio reshaping and de-conglomeration will remain a significant driver of transactions, as the market continues to reward simplicity and focus. We also expect elevated interest in cross-border transactions into the U.S. from European corporates looking for greater exposure to the higher-growth U.S. market.

Ultimately, however, private equity will need to be a key driver of the rebound.

Private Equity Outlook is More Optimistic, but Mixed

Sponsors continue to sit on significant dry powder and a record backlog of portfolio companies to exit. Buy-side activity began to recover in 2024 as interest rates moderated, but with financing costs remaining elevated and valuation gaps lingering, unless and until interest rates recede further we expect to see a continued “barbell” effect in the market in the near term, with both high quality and distressed assets seeing strong interest from private equity bidders while activity is more mixed in between.

Meanwhile, as the exit backlog has mounted, limited partners are increasingly focused on distributions to paid-in-capital and sponsors are eager to deliver. Sponsors have continued to utilize alternative liquidity options, new and old—minority stakes sales, continuation funds, GP-led secondaries, dividend recapitalizations, and NAV loans—while holding assets in their portfolio. While these alternative liquidity options aren’t going anywhere, there are limits to their ability to compensate for the shortfall in traditional exits, which sponsors will be anxious to increase in order to return capital and boost further fundraising. An increase in sponsor-to-sponsor transactions will be needed to clear the backlog, however, and this is where buy-side and sell-side challenges converge.

We will see a shift, but not a sea change, on the approach to antitrust risk.  

Lina Kahn may be gone, but we don’t expect parties to throw caution to the wind on antitrust risk any time soon, despite much commentary that the regulatory reins are set to loosen.

First, as we have noted elsewhere in this memorandum, the first Trump Administration was at least as aggressive, if not more so, than the Biden Administration in overall levels of enforcement. What distinguished the agencies under Biden has been the unpredictability of enforcement activity, more novel theories of harm, and resistance to consent decrees. A return to predictability and the willingness of agencies to settle merger challenges should increase risk appetites and open up some bigger bets, but the degree to which those conditions will return, and the overall level of scrutiny, remains a significant open question.   

Second, the recent history of merger litigation has exposed the potential limitations of “hell or high water” and other similarly strong regulatory covenants, as targets seeking to enforce these covenants have encountered difficulties in doing so in a timely manner. This, together with agency behavior, led to a focus on “fix it first” strategies and a surge in the use of antitrust reverse termination fees since 2020, with targets looking to financial pain to condition buyer behavior. We expect target boards and sellers to continue to pay heightened attention to antitrust risk and approval strategy, and to seek termination fees at elevated rates. Buyers, on the other hand, should still proceed with caution in negotiating antitrust covenants and termination fees.

Shareholder Activism in 2025

2024 was once again a robust year for activism and 2025 will be no different.

Many key themes of the activism landscape in 2024 were extensions of trends from years prior. These include the continued diversification of the activist field (with additional new and spinoff players joining the established firms), an elevated focus on strategic and operational campaigns and increased targeting of CEOs. After three relatively frenetic years of activism post-pandemic, however, it is worth stepping back to observe the macro trends that have taken shape.

The profusion of activists and extended legacy of activism in the U.S., together with companies increasingly becoming their own activists or adopting more of the private equity playbook, has resulted in a larger pool of activists reaching for a dwindling supply of attractive targets. This has contributed to two significant recent phenomena:

• The so-called activist “swarm”—with companies frequently facing two or three (or more) activists in the same campaign season. This itself has contributed to one of the more significant developments in activist tactics—the rise of the “sneak attack”, as activists seeking to preempt the pack are increasingly willing to forego private engagement and initiate campaigns publicly.
• The exportation of U.S.-style activism abroad, which is not limited to U.S. activist funds but heavily influenced by them, as they seek opportunities in the less-crowded waters outside the U.S. Traditional barriers to activism in these other jurisdictions—whether from more consolidated share ownership or regulatory regimes—have become less of a deterrent. Activists are willing to run campaigns even when the odds may seem stacked against them, and argue that the results (even if not a win at the ballot box) signify a sufficient mandate for change. (An attitude which may also reverberate stateside, with activists being more willing to take on controlled companies.) 

In the U.S., the increase in campaigns initiated publicly only increases the importance of advance preparation. It is no longer sufficient to have a “break glass” plan. Companies need to conduct a more detailed assessment of vulnerabilities, consider proactive steps if consistent with the board’s strategy, develop more sophisticated rebuttals and media response plans and revisit each of these more regularly. This also applies to recently spun-off or IPO’ed companies, as activists are giving these issuers less runway than they have in years past. As a result of more sophisticated advance preparation, as well as increasing familiarity with the universal proxy landscape, we expect to see more companies being less quick to settle.

Outside the U.S., it is only a matter of time before U.S.-style settlements become more common, although we believe local dynamics will continue to keep settlement rates much lower than what is seen in the U.S. for the foreseeable future.