M&A Outlook for 2025
2024 has been a stagnant year for mergers and acquisitions (M&A), with few deals finalised – and the ones taking place are moving slowly. However, the decisive outcome of the US election has brought businesses stability and clarity, exactly what they needed.
The M&A market’s stagnation is due to two reasons. First, high interest rates. It is less appealing for businesses to venture into deals, as many buyers finance all or a portion of their purchase of a company with debt. The other reason is the outcome of the US election, which was an intense period of anticipation for investors and Wall Street. Donald Trump’s pro-corporation and transactional policies and the Federal Reserve’s rates cut will likely pave the way for deals activity to grow.
In the Banking and Finance sector, BlackRock is starting talks with Millenium Management – one of the most profitable hedge fund managers – for an equity stake. Meanwhile, Capital One proposed a takeover of Discover Financial Services – both leading credit card lenders – for $35bn in a horizontal transaction that was expected to face regulatory backlash. On top of this, a wave of consolidation among mid-sized US banks is expected after the shift to Republican leadership. A spokesperson stated that a wave of deals amongst the largest banks will be agreed upon and be given regulatory approval.
Investors are, above all, keeping an eye out for change in the Oil and Gas sector, which is expected to grow significantly under Trump. In a speech at the Republican National Convention, Trump chanted, “We will drill, baby, drill”. This year, the sector had already seen a major deal after Chevron acquired the oil explorer Hess for $53bn. This is at the expense of renewables, which are expected to decline. Most American renewable companies have already lost share value after Trump’s win.
Yet Wall Street’s optimism is not shared by all. Many economists fear that Trump’s protectionist policy of imposing 20% duties on foreign goods and establishing even higher tariffs on Chinese imports may hurt the economy. Transactions may, therefore, fall short of what Wall Street is expecting. There are also concerns surrounding Warren Buffet’s behaviour after Berkshire further slashed its stake in Apple and pushed its cash pile to a record $325bn. Investors and analysts are questioning whether Buffet is creating a runway for his successor as Chief Executive or if he expects a looming financial crisis.
Across the Atlantic, the M&A activity in the UK is also expected to grow. Significant progress was made towards the domestic merger of Vodafone and Three UK. The deal is expected to be one of the most impactful deals in the UK, worth £16.5bn, with advice from Slaughter & May and Linklaters. The Competition and Markets Authority has allowed the merger to take place on certain conditions. The companies must commit to delivering £11bn to upgrade their UK network and roll out 5G, retain existing mobile tariffs and data plans for three years, and deliver a joint network plan over the next eight years.
For Big Law, there continue to be several major changes. In May 2024, Magic Circle firm Allen & Overy merged with New York-based Shearman & Sterling in the largest legal merger of the last few years. The merger created a new global powerhouse, bumping the British counterpart from 12th to 4th place in the Global 200 ranking of largest law firms by revenue. This move aligns with the trend of UK-based law firms setting up shops in the US, such as Clifford Chance’s expansion to Houston. Most commercial activity has been happening in America, justifying expansion across the pond. Unexpectedly, Herbert Smith Freehills, which had always refrained from jumping into the US market and kept its focus in Europe and Asia, announced on the 11th of November that it is working towards merging with Kramer Levin. The smaller firm generates more than $400m in its Silicon Valley, Washington D.C. and New York offices. While HSF generates a much larger sum ($1.3bn), its revenue per lawyer is much smaller compared to Kramer’s, justifiable by more billable hours urged on its attorneys. The question remains whether HSF’s culture will change towards becoming more of a US firm with stricter billable hours and less work-life balance.
Overall, M&A activity is on track to surge immensely during 2025, when Trump’s term starts. Although some fears related to the increase in tariffs exist, the certainty of the election result, coupled with lower interest rates and de-regulation under the Republicans, will drive activity forward for the foreseeable future.
By Omar Vasconcelos
