INTRODUCTION Contributed by: Frank Aquila, Sullivan & Cromwell LLP
providing significantly more clarity and certainty to transacting parties. Although the European Commission may attempt to broaden its regula - tory powers in the future in light of this decision, in the immediate term there is a greater sense of predictability in European M&A. This, in turn, will likely lead to more M&A transactions altogether. Private equity exit pressure grows M&A activity backed by private equity (PE) funds finally picked up in 2024 after a particularly weak 2023. The overall value of PE-backed M&A reached USD705.9 billion in 2024, an increase of 24% compared to 2023 and ranking as the third largest annual period for PE-backed M&A since records began in 1980. Nevertheless, many believe that 2025 is positioned to be an even better year, with favourable conditions sug - gesting robust growth opportunities. Over the past three years, below-average lev - els of PE exits have resulted in rising average holding periods for PE portfolio companies. For example, nearly half of the 29,400 PE portfo - lio companies worldwide have been held since 2020, with the average holding period for spon - sors being five years in 2023–2024 compared to 4.2 years in 2021–2022. Not surprisingly, many limited partners are growing impatient as they await a return on their investments. PE funds are also now holding onto record high levels of dry powder, estimated to be roughly USD2 trillion. With a surplus of capital, PE funds are expected to be less selective and take advantage of a wide variety of market opportuni - ties, spanning from mega-deal acquisitions and PE-backed IPOs to minority stake transactions. With pent-up demand and unprecedented levels of dry powder to be deployed, PE investments
and exits can be expected to drive a significant amount of M&A in 2025. Headwinds for M&A in 2025 Favourable trends including those described above are expected to support M&A activity throughout 2025, although M&A will likely con - tinue to face certain headwinds this year that may act to counteract some of the positive momentum that is anticipated. Specifically, as has already been seen through the first months of 2025, minor growing pains are to be expected in the United States as the economy and the rest of the world react to the transition of power to the Trump administration. In particular, market participants may refrain from engaging in M&A activity, both in the United States and globally, for the foreseeable future until volatility settles and they get a better picture of what 2025 has in store. Additional headwinds for M&A in 2025 include: • unpredictable regulatory enforcement; • trade wars; • the imposition of new tariffs; and Globally, the potential for trade wars and the implementation of additional tariffs have led to a great deal of uncertainty in the markets. It is expected that these trends and variability will cause M&A activity to slow down, at least in the near term, as market participants attempt to understand what the impact will be upon businesses that may otherwise be the targets of M&A transactions. To the extent that further tariffs are implemented, retaliation from foreign governments would not be unexpected, thereby causing additional obstacles to the consumma - tion of transactions and further impeding deal making from taking place. These protectionist • geopolitical tensions. Trade wars and tariffs
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