The global mergers and acquisitions (M&A) landscape is undergoing a structural shift in 2025, driven by tighter financing conditions, prolonged valuation mismatches, and an increasing tide of regulatory scrutiny. According to Norton Rose Fulbright’s Global M&A Trends and Risks 2025 report, deal activity is recalibrating toward smaller, more strategic transactions, with dealmakers navigating a fundamentally different risk-reward environment compared to the boom years of 2020–21.
Total deal volume in Q1 2025 fell 9% year-on-year, while deal value dropped 14%, continuing a deceleration that began in late 2022. The drop in megadeals, transactions valued over $10 billion, has been especially pronounced, accounting for just 4% of total M&A volume, down from 11% at the peak. This decline reflects both the high cost of capital and greater antitrust scrutiny, particularly in North America and Europe.
Yet activity in the mid-market (deals below $1 billion) remains resilient, particularly in sectors where corporates and private equity (PE) are pursuing bolt-on acquisitions, digital pivots, or regional diversification. Healthcare, software, energy transition assets, and advanced manufacturing are leading targets globally. Norton Rose Fulbright notes that in this more fragmented environment, corporate carve-outs and distressed deals are taking centre stage, driven by ongoing portfolio rationalisation and financial stress in select sectors.
Financing tightens, but dry powder holds
The high-rate environment continues to suppress LBO activity. Global leveraged buyout deal value dropped 21% year-on-year in Q1 2025, as elevated borrowing costs and tighter covenants reduced private equity’s ability to compete for larger targets. According to Preqin, global PE dry powder still stands at over $2.3 trillion, but deployment remains cautious, with many funds opting for minority stakes or structured equity to mitigate downside risks.
The report highlights growing interest in seller financing and deferred consideration mechanisms, such as earnouts and vendor loans, as acquirers and sellers attempt to bridge valuation gaps. For example, in the software sector, earnouts now feature in nearly 40% of deals above $100 million, up from 18% pre-2022, according to data from PitchBook.
Regulatory and political risk on the rise
Regulatory intervention is emerging as a top risk to deal with certainty. The US Federal Trade Commission (FTC), the European Commission, and antitrust watchdogs in Asia have adopted more assertive stances, particularly around big tech and cross-border consolidation. Norton Rose Fulbright points to a 35% increase in “second request” or in-depth investigations globally in 2024, which has extended deal timelines and increased abandonment rates.
The political risk landscape is equally fluid. Elections in over 70 countries this year, including the US, UK, and India, are adding uncertainty to investment timelines. Meanwhile, geopolitics is redefining the feasibility of cross-border deals. Sanctions, export controls, and inbound investment reviews—especially those targeting China-related transactions—have led to a 22% year-on-year decline in Asia-to-Europe deal flow.
In the Middle East, however, deal activity is gaining pace. Sovereign wealth funds (SWFs) from the UAE, Saudi Arabia, and Qatar continue to invest aggressively across sectors, particularly in healthcare, energy, mobility, and AI infrastructure. For example, Abu Dhabi’s ADQ and Saudi Arabia’s PIF were involved in over $20 billion worth of cross-border M&A in 2024, according to Refinitiv.
ESG, AI, and carve-outs shape 2025 strategy
Three trends stand out in shaping M&A strategy for the rest of 2025. First, ESG integration is moving from compliance to commercial value. Companies with strong ESG credentials, especially in clean tech, water, and circular economy segments—are commanding valuation premiums despite the overall caution.
Second, artificial intelligence is both a thematic and functional driver. Strategic buyers and PE are acquiring niche AI firms to embed capabilities in automation, predictive analytics, and cybersecurity. Notably, Norton Rose Fulbright observes that AI is increasingly used internally in M&A for target screening, synergy modelling, and due diligence acceleration.
Third, carve-outs are driving much of the volume. Norton Rose Fulbright expects more than 35% of 2025’s strategic deal flow to come from divestitures. This reflects pressure on conglomerates to sharpen focus and unlock trapped value, particularly in Europe and Asia. Notable recent carve-outs include Siemens Energy’s divestment of its grid services business and the separation of Japanese conglomerate Hitachi’s industrial tools unit.
Risk-tolerant, sector-focused strategies ahead
Looking ahead, dealmakers are adjusting to a world where valuations are no longer inflating, but capital discipline and strategic alignment are key. Sector-specific tailwinds in areas such as renewable energy, defence technology, and supply chain digitisation will continue to attract capital, albeit with more structured terms and longer due diligence.
The report highlights that successful M&A in 2025 will depend not only on balance sheet strength but also on the ability to navigate a multi-dimensional risk landscape, combining financial, regulatory, geopolitical, and operational filters.
While overall volumes may remain subdued compared to the 2021 peak, the market is entering a phase where smart capital, not just cheap capital, will define deal success.
