Uncertainty in M&A has become the new normal. Under conditions of multiple, significant, and global macroeconomic shocks, companies and investors are becoming more purposeful about their deals. While there is still meaningful deal volume (approximately 80 to 90 percent of levels experienced a decade ago), we see a higher bar for ensuring value creation and a greater willingness to engage in alternative deal types, such as joint ventures (JVs) and alliances. The era of “opportunistic” deals has passed, as interest rates no longer hover near zero, disruptions have become constant, and uncertainties are profound and multifaceted.
Indeed, neither the scope nor the depth of uncertainties in M&A can be captured by a single, simple depiction. Instead, they can best be understood by examining them through multiple lenses that offer different and, in the aggregate, complementary snapshots—or what we call postcards—of the new normal (see sidebar, “Six postcards, six takeaways”). Taken together, these postcards offer insight into the shifts of the past few years and the challenges that dealmakers now confront. They also suggest a range of outcomes going forward, both for defense-minded strategies and potentially bolder moves.
Postcards across dimensions
There are numerous lenses through which one can examine M&A dynamics. Among the most revealing, we found, are (1) historical macroeconomic comparisons; (2) analyses of key financial metrics, including deal counts, valuations, cost of funding, and numbers of IPOs; (3) geographical differences (including, importantly, M&A across borders and continents); (4) size of deal synergies; (5) frequency of alternative transactions (such as alliances and JVs); and (6) developments specific to private investors, particularly private equity (PE) funds.
Historical macroeconomic comparisons
Our first snapshot is a historical macroeconomic comparison—that is, a look at what’s different and what’s similar between present macroeconomic developments and previous ones (Exhibit 1).
The key takeaway from this postcard? The year 2024 followed a pattern similar to many other macroshock periods of recovery and, though deal prices on a real basis have been broadly declining for about a decade, likely also reflected uncertainties related to the US presidential election year (Exhibit 2).
It’s tempting to call the past few years a “perfect storm.” But doing so suggests that the recent past represented a one-off happenstance that is now behind us and that more stable, predictable times are ahead. In fact, and more likely, a combination of forces and shocks is likely to endure through the foreseeable future.
M&A activity has always varied to some extent, of course, and downturns aren’t new; though each decline has been different, they share important commonalities. What’s similar about current developments compared with prior developments? Most prominently, the decreases in dealmaking we see today remind us of the oil shocks of the early 1970s—a combination of events and forces (an energy crisis, a severe strain on supply, the resurgence of inflation, rising geopolitical tensions, and a deceleration in productivity in developed markets) that wasn’t contained within a single or few industries and geographies.
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That’s unusual. While most of the other past downturns (such as the Asian financial crisis in 1997, the dot-com bubble in 2000, and the global financial crisis from 2007 to 2009) were largely contained within specific regions or sectors, the pandemic and postpandemic shocks that dealmakers now confront reverberate across sectors and geographies. Moreover, today’s uncertainties are marked by a combination of changes happening at approximately the same time—even if those shifts don’t dominate the headlines.
Consider regulation: The rules that govern M&A within and across regions are undergoing some of their most consequential changes in decades. To take one prominent example, the United States experienced a dramatic spike in regulatory challenges to transactions, and new rules are going into effect that will substantially alter filing requirements—though whether those rules will endure is itself uncertain since the nature and extent of changes between the Biden and second Trump administrations is yet to be determined.
Or consider capital flows: In Europe, foreign direct investment is declining substantially in some of the region’s largest economies. Now, changes to tariff policy threaten to upset global markets even further. Nor, of course, are these dynamics the only sources of uncertainty. Strains on global supply chains are pronounced, geopolitical tensions are rising, and carbon constraints are becoming more urgent. The shocks are far more varied and, in some respects, much more intense than in previous crises (Exhibit 3).
Deal metrics
Historical comparisons, while helpful, reveal only part of the story. Another critical lens is financial and deal metrics. Start with deal volume: The number of deals in recent years has decreased in the aggregate, but aggregate decline in deal flow is largely a function of deal counts, which are falling amid uncertainty.
The key takeaway from this postcard? Deal multiples are down more than seven turns amid the current uncertainties, far exceeding multiple compression during prior downturns. While overall deal multiples and top quartile multiples are currently within historical averages, the decline in the past few years is stark—and perhaps a reflection on the frothy median deal multiples seen early in the COVID-19 pandemic.
Deal multiples from 2021 to 2024 were slightly above the average of the second quartile of the past 25 years and slightly higher than multiples in prior, recent crises. But the data are not sufficient to identify a clear trajectory. A closer analysis reveals that M&A activity typically falls over time in the wake of economic shocks. Deals that had already been in the pipeline typically are completed, but new deal flow is constrained—hence the lag. Moreover, macroeconomic challenges are persisting. Customer sentiment is the lowest it has been in decades. In addition, the days of cheap funding that had marked economies before the COVID-19 pandemic are over, at least for the foreseeable future. For most of the 2020s, the cost of funding has been fluctuating, sometimes wildly, and the volatility is presenting a significant challenge to M&A. Finally—and not surprisingly, amid roiling uncertainty and shocks to capital markets worldwide—the number of IPOs has decreased sharply (Exhibit 4).
As of mid-November 2024, P/E multiples reached 35 times compared with less than 25 times in early 2022, and multiples of EBITDA to enterprise value climbed about 10 percent since the start of 2023. It’s important to note that these observations represent a global aggregate; different industries reflect varied dynamics, as do different geographies (and cross-border transactions) and categories of dealmakers (that is, financial versus corporate). These analyses, among others, are presented in more detail below.
Cross-border M&A
The key takeaway from this postcard? Companies pivoted hard to gain access to the Americas, expecting growth exposure, and paid a premium for this access.
It would be reasonable to expect that uncertainty has had a similar, downward effect on deals across borders. Yet surprisingly, that’s not the case (Exhibit 5).
We define cross-border M&A in two ways: Deals across borders but within the same continent (for example, a company based in France acquiring a target in Germany) and deals that span continents (such as a US company acquiring a Netherlands-based business). With respect to both categories, cross-border M&A has remained steady despite global uncertainty, with roughly 25 percent of deal value being cross-border. Indeed, valuations for individual cross-border deals are increasing. The reasons are largely case-specific; for example, some companies have an immediate need to reposition their supply chains and secure beachheads in markets (especially with pending supply chain or tariff barriers), while others continually track to where the growth is—including new businesses and markets.
Drilling down further, we found that approximately 60 percent of intercontinental deal volume for deals larger than $500 million came from transactions between EMEA (Europe, the Middle East, and Africa) and the Americas, with the buyers and sellers almost evenly distributed between the two regions. That’s nearly double the size of the next largest category—Asia–Pacific (APAC) and Americas deals, which, at 26 percent, also split evenly between those two regions in terms of where the funds were flowing. The smallest category, APAC–EMEA deals (13 percent), was half the size of APAC–Americas deals; in that case, APAC initiated the larger share of intercontinental funding (8 percent versus 5 percent), though both are growing rapidly.
To recognize today’s new normal, it’s important to remember the key, counterintuitive nuance: Cross-border M&A is trending up, and cross-border deals are bringing higher valuations. These dynamics run decidedly counter to declining or flat trend lines within most individual countries and regions.
Deal synergies
The takeaway from this postcard? Announced synergies in 2024 were well above historical averages. This reflects bullishness on cost, capital, and revenue, but also likely a need to justify premiums in an uncertain environment.
One might expect that massive uncertainties would have a negative effect on the size of deal synergies. After all, forces in flux could (and, one would expect, should) present a headwind for capturing postclosing value. Yet here again, closer analyses reveal surprises. Following the COVID-19 pandemic, the percentage of M&A transactions announcing cost or revenue synergies (or both) decreased, particularly for revenues. But for transactions that did announce synergies, on either or both the revenue and cost sides, the size of synergies increased significantly as a percentage of transaction value (Exhibit 6). We observe, moreover, that realized synergies are often considerably higher than what has been announced and consider not only combinational cost synergies but also sales and capital synergies.
Today, cost synergies are nearly double 2015 levels, and revenue synergies have, remarkably, risen eightfold over the same period. These clear, positive trends are hardly the indication of a decidedly down market. Instead, this postcard presents a more nuanced perspective of the current, uncertain new normal, with several forces at work. For example, because of pervasive uncertainty, many boards require more convincing for M&A and green-light only those deals that have more significant synergy potential or are less likely to involve prolonged and potentially costly legal review. It also indicates more proficient corporate acquirers, able to commit to larger value creation targets as they size a deal. In addition, with a higher cost of funding, a larger value creation envelope will be needed to meet the internal rate of return requirements of acquirers. No single or simple explanation fits every case; complexities leave open a fan of outcomes for deals to succeed, fail, or (for now) stay in neutral.
Alternative deal types
The takeaway from this postcard? Alternative deal structures, particularly JVs and alliances, are back in vogue, reflecting earlier-stage acquisitions and a desire to access functional capabilities in developing areas such as artificial intelligence (Exhibit 7).
The current M&A environment also reflects a new normal in alternative deal types. The share of JVs and alliances has settled at a higher percentage compared with the period between 2004 and 2017. The rationale for alternative deal types can be particularly compelling in uncertain times; these structures allow dealmakers to potentially reduce dependencies on interest rate fluctuations and ride out a funding crunch until interest rates subside and then stabilize. Moreover, the share of minority investments has increased following recent shocks (for example, in 2020, 2022, and 2023). That dynamic, too, is consistent with uncertainty, as acquirers seek to adjust for funding gaps, decrease risk, and address potential regulatory concerns.
Private equity
The takeaway from this postcard? Private equity (PE) remained largely on the sidelines in 2024. But as the length of time that financial buyers are holding businesses is reaching historical highs, PE funds are holding substantial levels of dry powder—and their share of deals is below historical highs (Exhibit 8). Those dynamics suggest increased pressure on PE firms to engage in more dealmaking.
Because M&A is driven by strategic and financial dealmakers, it’s helpful to disaggregate the two. Turning the lens on private investors reveals that they currently have an abundance of dry powder. Multiple PE funds face a defined timetable, an increasing pressure to exit, and an urgent imperative to deliver higher investor returns. After the share of PE transactions peaked in 2021 (27 percent of total deal volume), investors have been pushing for deals, even when that could lead to potential “must sell” situations.
For more than two decades, private investors’ share of all M&A deals has run between 12 and 22 percent of total deal volume, and because that percentage is a function not just of their own dealmaking activity but also those of corporate dealmakers as well, it’s uncertain whether the recent trajectory since 2014 will plateau at the lower end of that range, return to the higher end, or perhaps set new highs (or even lows). PE’s overall share of M&A activity nudged slightly upward in 2024 compared with 2023 (15 percent of deals worldwide in excess of $25 million, one percentage point higher than 2023, and two percentage points lower than 2022). These levels, too, are a postcard from today’s uncertainty.
Assessing a range of outcomes
There are a range of outcomes in terms of how dealmakers, confronted with this new normal, could behave going forward. We observe that many companies are taking more defense-minded actions for M&A. That approach is certainly understandable given considerable unpredictability. Yet uncertainty also presents unique opportunities, and a more offense-minded approach could be highly attractive for those who dare.
Purpose, not opportunism
Companies and private investors are adopting more cautious strategies to protect capital and are slowing down M&A activities across the deal life cycle. Several key themes are particularly evident.
First, we’re seeing a more limited appetite for risk. This is particularly (but not solely) the case for industries that are more exposed to exogenous factors such as election outcomes and climate change. Second, most dealmakers are taking a selective and cautious approach. While programmatic acquirers have maintained their acquisition pace—and demonstrated the resilience that allows them to better source deals, optimize organizational structures in integrations, and demonstrate greater success in retaining key talent—a large majority of acquirers are pumping the brakes on the number of deals they initiate and scrutinizing those under current consideration. Opportunistic dealmaking of the last decade has decreased, and more purposeful deals (with rationales that seek to ensure a clear fit with a defined strategy) now mark the M&A landscape (Exhibit 9).
Dealmakers are seeking to make more holistic deal assessments, particularly during the due diligence phase. They are conducting rigorous analyses to improve the confidence level of sellers and buyers alike and are committing to ensuring that each deal meets clearly defined strategic criteria. They’re also seeking to maintain their focus through the integration phase to capture synergies more quickly, particularly on the cost side, amid rising uncertainty.
The implications of their more deliberate approach are reflected in expectations of future M&A activity. The dealmakers we survey express that they expect to do fewer deals.
Opportunities amid uncertainty
It’s understandable that intense uncertainty would lead dealmakers to adopt a more defensive posture. Yet the new normal offers new opportunities for those who adopt a bolder approach. A less active deal market allows them to take advantage of richer pipelines; buyers that maintain their commitment to M&A will have fewer contenders for targets and can achieve more value-accretive deals. In particular, they can be more proactive about potential deals with private investors facing pressure to sell assets held for longer holding times—and those on the lookout to buy as their dry powder increases. Dealmakers can also take advantage of new realities in creative deal structuring, using JVs and alliances to enable transactions in a context where more attractive funding may not be imminent. Ideally, too, they can capture higher synergy values as they put their customized playbooks into action.
Finally, it’s worth noting that, historically, companies that take a programmatic approach to deals are more likely in the aggregate to create value than companies that practice selective dealmaking, pursue large deals, or primarily pursue organic growth. Indeed, their success across several metrics has been particularly evident amid recent uncertainty. For one, they’ve demonstrated greater resilience, besting competitors by about ten percentage points in 2023 in aligning or even exceeding the number of deals articulated in their yearly strategic plan. Moreover, programmatic acquirers are winning across the deal cycle. Compared with 2021, dealmakers reported that they were markedly more likely in 2023 to hew to M&A playbooks for deal sourcing and due diligence, leverage integration to optimize organizational structures, and retain talent critical for sustaining a competitive advantage.
Uncertainty in M&A has indeed become the new normal. With interest rates no longer near zero, an array of macroeconomic shocks reverberating worldwide, and extraordinary unpredictability in regulations, geopolitics, and other key dimensions, dealmakers have become more purposeful and less opportunistic. There is a higher bar for delivering value creation, and an increased willingness to engage in more complex deal structuring. Yet purposeful M&A pays off, with higher excess TSR compared with other approaches. There are also no-regret actions that both offense-minded and cautious acquirers are deploying to create more value. Here, too, a full appreciation of the challenges and opportunities requires nuance, perspective, and a varied range of insights.
