What does 2025 have in store for dealmaking?

After a subdued market in the second half of 2024, the M&A outlook for 2025 is promising. What’s changed, and what will be driving dealmaking activity over the year ahead?

Stoking the engine

Although residual caution remains among businesses – particularly those in labour intensive industries that will be particularly hard-hit by the upcoming minimum wage and National Insurance increases – greater clarity over government policy is giving real cause for optimism. Businesses can now make plans, and act on them, with greater confidence.

But perhaps the biggest driver is the availability of capital. In recent years, the high cost of borrowing and global market volatility has made it tougher for firms to access the money they need to fund acquisitions. However, with the expectation of interest rates coming down gradually over the months ahead – borrowers may have increased confidence to approach the markets to seek capital.

While this might put businesses in a better position to pursue M&A ambitions, it doesn’t mean that they’re any less cautious or light-handed in how they approach acquisition. The aftershocks of previous years are still being felt. Potential investors are placing an increased emphasis on due diligence before deploying any capital.

But they are keen to put that capital to use.

What this all means is that now, more than ever, good preparation is key, particularly for those looking to sell.

It will be particularly important to ensure that information on financial performance is detailed and up-to-date, and that management teams have developed a clear, and confident, narrative of the business’ performance – covering not only growth prospects, but also being honest about risks.

From the deals that we’ve been advising on, this focus on detail, coupled with candour, has been key to achieving successful transactions. It ultimately means that buyers can invest with confidence and protects the seller from the risk of price chipping or even the collapse of the deal further down the line.

Who’s buying?

So, with this year likely to see an increase in acquisitions, who is it that will be making them?

Last year more than half of the transactions that FRP Corporate Finance supported involved private equity, and this trend of PE-led dealmaking looks set to continue in 2025. PE investors have continued to raise funds and are well-placed to deploy capital once they spot an opportunity they’re keen to pursue.

We also expect continued interest from trade buyers – both in the UK and from abroad. In particular, we anticipate increased interest from US acquirers, due to the current strength of the dollar.

Several sectors are likely to attract particular interest. Software, SaaS and technology businesses – particularly those with AI features – will continue to be in high demand. With 20 accountancy firms now backed by private equity, the professional services sector is also likely to demonstrate continued appetite for acquisition, while property management companies will be looking to build on greater confidence through acquisitive growth.

The rise of alternative structures

Deal structures will continue to vary in line with the specific demands of buyer and seller. But we’ve seen the increasing popularity of alternative structures in recent years and expect this to continue.

For example, with the extended timelines and heightened due diligence currently seen in trade sales, transacting with the management team through an MBO has become an increasingly attractive option for many. Meanwhile Employee Ownership Trusts (EOTs) are also becoming more prominent in the lower end of the market, as firms look to mitigate the impacts of the recent rise in capital gains tax.

A more cautious market is also paving the way for more deals with earnouts, or transactions where the owner retains a stake. These can offer significant benefits for buyer and seller alike – helping to bridge potential valuation gaps by linking the price to future performance, motivating owners to actively support integration and encourage the ongoing success of the business.

The road ahead

With capital becoming more readily available and relative political and regulatory certainty, we are optimistic for a resilient 2025 dealmaking landscape.

For businesses considering M&A activity – either as a buyer or seller – good preparation will be imperative and mean they can maximise the value realised in both the short and long term while ensuring a smoother, less challenging process. Seeking the advice of an expert adviser, with experience in the local, national and specific sector markets, can be invaluable in creating a strategy that delivers for all.

First published in platinummediagroup.co.uk – March 2025