The outlook for global deal-making

Episode Summary

Executive Summary: Goldman Sachs M&A co-heads said 2024 dealmaking rose about 10% from 2023, helped by moderating inflation, Fed cuts, and a normalization in valuations, but activity remained shaped by regulatory, geopolitical, and election uncertainty. Looking to 2025, they expect continued growth rather than a breakout surge, led by large strategic deals, selective private equity deployment, cross-border activity, and AI-related investment themes.

Main Topics: 2024 M&A rebound and 2025 outlook (Priority: 5/5): Deal activity improved steadily through 2024 after a weak 2023, with both speakers expecting similar or slightly stronger growth in 2025, though not a dramatic boom. Rates, valuations, and psychological normalization (Priority: 5/5): Lower rates helped dealmaking, but absolute rates remain high versus the post-crisis era, requiring companies and sponsors to adjust to a 'new normal' in capital costs and valuations. Geopolitics, tariffs, regulation, and elections (Priority: 4/5): Policy uncertainty still affects timing and execution of deals, especially in the near term, but boards and strategics are said to think in decades rather than election cycles. Sector leadership in deal activity (Priority: 4/5): Energy, healthcare, consumer, and technology were highlighted as active sectors, with scale and strategic consolidation driving acquisitions. Private equity deployment and exits (Priority: 5/5): Sponsors are deploying capital more actively, but exits remain constrained by valuation gaps and a still-recovering IPO market, limiting full-market acceleration. Geographic shifts and cross-border revival (Priority: 4/5): Europe saw a sharp normalization, Asia is recovering unevenly, and the U.S. remains a beneficiary of onshoring and perceived stability; cross-border activity is starting to re-accelerate. Generative AI as a capital-allocation theme (Priority: 4/5): AI is expected to drive investment, partnerships, and infrastructure buildout first, with M&A likely to follow later as winners become clearer and valuations more established.

Key Arguments: 2024 M&A activity was roughly up 10% year over year, consistent with Goldman Sachs' expectation for a gradual recovery from a low 2023 base. Interest-rate cuts supported dealmaking, but the bigger effect was a psychological adjustment to higher-for-longer capital costs and lower leverage than the post-2008 era. Political and geopolitical shocks can delay deals in the short term, but large corporates and boards make multi-decade strategic decisions, so long-term M&A demand remains intact. Scale is increasingly viewed as a strategic imperative across geography, products, and financing resilience, which supports consolidation activity. Private equity deployment is improving, especially in public-to-private and infrastructure, but exits remain the bottleneck; a healthier IPO market is key to unlocking more activity. Europe has normalized quickly from a weak 2023, and Asia is following a similar path with strength in Australia, India, and Japan, while China remains muted. AI will initially drive spending on data centers, power, real estate, semiconductors, and infrastructure through partnerships and capital investment more than outright M&A. The biggest upside risk for 2025 is better-than-expected conditions for large transactions; the main downside risk is renewed geopolitical, regulatory, or macro headwinds.

Data Points: M&A growth in 2024 vs. 2023: About +10% - Stefan said 2024 ended roughly in line with Goldman Sachs' earlier expectation for a plus-10% year relative to 2023. Private equity share of M&A at peak: Close to 40% - Stefan described historical peak private equity participation in the M&A market. Private equity share of M&A in recent years: Low 30s into the 20s - He said PE's share dipped from its peak to the low-30% range and then into the 20s. Rates comparison: Still relatively low over 30-50 year history - Stefan argued current absolute rates are still low in historical terms despite being much higher than the post-financial-crisis period. Valuation of sponsor portfolio companies: $10 billion or well over $10 billion - Large sponsor-held assets are difficult to sell because the buyer universe is narrow. Expected 2025 M&A pickup: 10% to 15% - Stefan said Goldman expects a modest additional increase in 2025, not a surge. AI data center power demand: Massive consumers of energy - Stefan emphasized the scale of power needs from AI data centers and hyperscalers. Recording date: Wednesday, December 11th, 2024 - The episode notes specify the recording date.

Pivotal Quotes: "we are balanced and have a similar view in terms of 25 over 24" — Stefan Feldgois: On Goldman Sachs' expectation that 2025 M&A growth will be similar to 2024 rather than dramatically stronger. "We think in decades in our business" — Stefan Feldgois: On why geopolitical, tariff, and election shifts affect timing but not the long-term logic of strategic M&A. "The way I agree with Stefan is: you know, we've had some headwinds in the last couple of years... and we're in a moment when our clients believe those headwinds are abating or reducing" — Mark Tsarell: On why client sentiment is improving and supporting more optimism for larger transactions.

Implications: Expect a steadier 2025 deal market, not a boom: large strategic deals, cross-border transactions, PE exits, and AI infrastructure investment should improve, but policy shocks, valuation gaps, and IPO weakness could slow momentum.