2025 M&A boom: Key sectors primed for enhanced growth
This article originally appeared in Crain's Cleveland Business on January 13, 2025.
After a sluggish 2023, the mergers and acquisitions landscape improved in 2024, signaling the start of a promising recovery in deal activity. While deal volume increased and is approaching pre-pandemic levels, it has not reached the levels seen during the boom of 2021-22. This gradual rebound can be attributed to factors including higher interest rates, inflation and ongoing global geopolitical uncertainty, which have hindered deal activity momentum. With consumer confidence in the economy growing, interest rates expected to ease, bottled-up interest from business owners to monetize their assets, and the time-limited nature of private market investments, the stage is set for heightened M&A activity in 2025.
The following sectors appear particularly ripe for activity.
Artificial intelligence & technology
In 2023-24, industry leaders grappled with embracing AI for their operations. According to IDC, global AI market spending stands at nearly $235 billion, with projections indicating a rise to over $631 billion by 2028. With the potential need and appetite for AI in the future, AI companies experienced significant investment from venture capital and limited partners for research and development in 2024. While investors are expected to continue their interest in AI companies, the large-scale investments made for R&D in 2024 are expected to decrease. We anticipate seeing deal activity by mid-2025 for the most successful AI companies coming out of these R&D activities. We also anticipate increased deal activity due to digital transformation as companies develop a greater need for cloud computing and cybersecurity.
Health care
While private equity deal making activity in health care decreased in Q3 2024 and has declined since 2021 highs, industry experts remain optimistic about an increase in health care M&A in 2025. The health care M&A market has seen a consolidation of providers resulting from efforts to improve efficiency, combat labor shortages, and promote technology adoption and revenue cycle optimization. Medspa and aesthetics, outpatient mental health, cardiology, aesthetics, dermatology, oncology, specialty dental and veterinary will continue to see high demand and interest in 2025 for sponsor-formed physician practice management companies.
Energy
The energy sector is expected to experience a surge in M&A activity in 2025 due to an increased focus on transitioning to cleaner energy sources, renewable energy acquisitions, strategic partnerships to develop carbon capture technologies and consolidation within the sector.
Financial services
Traditional financial institutions are experiencing increased competition from non-regulated and less-regulated financial service startups and fintech companies. As a result, the financial services sector is expected to see greater M&A activity in 2025. Traditional financial institutions are focusing on cost efficiencies and scalability, which may lead to additional acquisition activity. Financial institutions are looking to expand technology to provide new services to build and maintain strong customer relationships. This will continue for financial services M&A activity in 2025, as acquirers need to make robust value-add offers based on new services and technologies, as well as compliance and regulatory solutions and cost efficiencies. Some experts believe that M&A activity in this sector will increase in 2025 and 2026 due to an expectation that deal approval “will speed up markedly and the process will be more clearly delineated” under a Trump administration, according to Piper Sandler analyst Mark Fitzgibbon.
Industrial and manufacturing
The industrial and manufacturing sectors are expected to see moderate growth in 2025 as digital transformation and automation technologies put pressure on companies to stay competitive in an evolving market. With sustainable transportation gaining momentum, increased investments in battery technology, electric vehicle infrastructure and autonomous vehicle development will likely drive additional deals.
While we do not anticipate M&A activity rising to the unprecedented levels of 2021-22, the number of transactions in 2024 approached pre-pandemic levels of activity, setting the stage for an exciting 2025. The pent-up demand for deals, combined with renewed optimism in the market, means 2025 could see an influx of high-stakes transactions driven by a powerful mix of buyer appetite and seller readiness. This environment could spark bidding wars, pushing deal values higher and accelerating the pace of activity.
Start planning now if you are considering an acquisition or divestiture in 2025. Consulting with your advisers early is crucial to navigating shifting market dynamics and capitalizing on this exciting M&A environment. With an optimistic deal horizon on the way, the 2025 M&A market promises opportunity and strategic advantage.
Amy Willey is a member in the Mergers and Acquisitions Practice Group at McDonald Hopkins. Contact Amy at awilley@mcdonaldhopkins.com. To learn more, visit mcdonaldhopkins.com.
The foregoing discussion is general information rather than specific legal advice. Always consult your legal adviser before using this discussion as a basis for a specific action. This material is not intended to create, and your receipt of it does not constitute, an attorney-client relationship with McDonald Hopkins.
