Dealmakers adapt to the new low-growth normal and international dealmaking slowly rebounds
Published on 4th Feb 2025
With economic weakness and geopolitical uncertainty continuing, deal parties adjusted further in 2024 to dealmaking conditions and valuation challenges
2024, and in particular the second half of the year, saw a slow rebound of global dealmaking after a quiet 2023.
Osborne Clarke has prepared a report in which we have analysed, from a legal perspective, the trends emerging in dealmaking in 2024 and look at how they are likely to pan out in 2025.
Key findings from the report include the following:
2024 look-back
In 2024, global M&A activity saw significant growth in both deal value and deal count, particularly in the second half of the year, with notable regional differences. The M&A market experienced an increase in transaction values and deal numbers compared to 2023, reflecting growing confidence in business valuations. Conversely, the Asia Pacific region saw a decline in M&A activity, although countries like India and Singapore showed resilience with notable increases.
Despite the increase in deals, 2024 was still a fairly challenging market and favoured buyers. This was unsurprising, given the continuing relatively weak growth in many global regions and ongoing geopolitical uncertainty. These conditions also affected investment activity and capital markets globally.
Private equity and venture capital both endured a slow year, particularly in H1, with interest rates remaining high in the first half of the year, and many sponsors and investors continued to take a wait-and-see approach until the last few months, when the market saw an uptick in buy-out activity. One bright light in the investment space was AI which attracted much interest from venture funders.
IPOs began to see a resurgence only in the latter stages of the year, including on alternative markets, with more activity in Q3 globally compared to the prior two quarters, and secondary fundraisings provided deal flows for equity capital market advisers.
On the whole, our predictions for dealmaking in Europe in 2024 were realised, though a return to more balanced or seller/company-friendly terms has not fully materialised yet.
At Osborne Clarke, we saw 474 deals undertaken by our international corporate practice, which was a significant increase on the previous year. The percentage of our deals that were international increased from 30 to 34% year on year (161 deals), and 24 of those deals featured more than three jurisdictions. These results demonstrate the growth of our practice across the board internationally, and Osborne Clarke's success in 2024 in advising increasingly on deals involving multiple jurisdictions.
Trends in 2024
The prevailing conditions had the following impacts on dealmaking in 2024:
Valuation gaps and risk appetite
In 2024, valuation gaps narrowed but still caused extended negotiations and deal renegotiations. Earn-outs and deferred considerations were common compromises. Buyers conducted deeper due diligence and sought more indemnities to manage the risks. Completion accounts were preferred over locked-box mechanisms in some jurisdictions to adjust to the financial unknowns. Market volatility complicated IPO pricing. Valuations hindered venture activity, though early-stage companies faced fewer challenges and milestones and tranched investments were occasionally used as a solution. Some exits were delayed pending an improvement in valuations.
Dry powder expended and overdue exits
Private equity and venture capital funds accumulated dry powder, spending less in 2023. By 2024, spending became imperative, leading to a slight increase in buyouts and venture investments. Funds delayed selling assets, leading to overdue exits and pressure to dispose of assets. There was a focus on existing portfolio companies or buy-and-build strategies.
Artificial intelligence
AI was a key investment for VC funds, with sustained interest in AI-driven innovations. Many AI companies went public, and AI drove transformative M&A. AI impacted deal processes, due diligence, investment strategies and financial analysis, and made progress in legal document review and drafting.
Alternative finance and private credit growth
Innovative financing structures including vendor loans, co-investments became popular to navigate high capital costs. The expansion of private credit offered flexible solutions. Non-traditional investors and corporate venture arms played significant roles. Earn-outs, share consideration and deferred considerations were used to aid cash flows. The private credit market is expected to remain a key funding source. More strategic acquirers funded deals off their own balance sheets.
Cross-border activity
Cross-border transactions rebounded due to an improving US economy and increased foreign investment. Near-shoring and local content activities grew, and the technology sector saw growth in cross-border M&A, particularly with AI targets. Cross-border listings gained momentum, and collaboration between tech firms and financial service providers increased. US buyers often required deal terms to follow a US style.
Environmental, social and governance
ESG influenced M&A strategies and investment decisions. Legislative benefits encouraged deal-making. Venture capital focused on sustainable startups, while private equity emphasised ESG accountability. Significant EU funds targeted ESG-compliant projects. The EU's Corporate Sustainability Reporting Directive made companies consider ESG in deals.
Conservative investment approach
Buyers and investors exhibited conservative tendencies, with buyer-friendly terms and thorough due diligence. To address concerns, conditions precedent and specific indemnities were added to deals. Interest in warranty and indemnity insurance increased. Investors pivoted to focused on high-potential sectors like AI, healthcare, and renewable energy. Technology was used to make well-considered investment decisions.
Distressed deals
In 2024, there was a slight rise in distressed M&A, particularly in consumer and retail. There were also carve-out deals. Venture capital saw rescue rounds, but investors often chose to cut their losses instead.
The rise of regulatory scrutiny
More jurisdictions enacted foreign direct investment (FDI) control laws, making transactions conditional. Parties sought early clearance to complete deals unconditionally. Regulatory scrutiny impacted M&A and venture deals. Some jurisdictions had unclear FDI laws, making navigation difficult. Parties also worked around the regulatory environment by avoiding large transactions.
Beginnings of resurgence of capital markets?
Q3 saw more IPOs as equity capital markets stabilised, including activity on alternative markets. Successful IPOs increased investor confidence. Declining interest rates and inflation contributed to the increase. AI companies saw sustained interest. Investor demand was high after limited issuance. Some IPO issuers waited for the US elections, suggesting a slow resurgence.
Dealmaking in 2025 – Osborne Clarke's view
The outlook for 2025 in the transactional market is robust, with expectations of continued growth despite challenges to dealmaking that remain. These include the ongoing geopolitical tensions in the Middle East, Ukraine and elsewhere; the potential for increased inflation, interest rates or reduced growth; a stringent and evolving regulatory and compliance environment; constraints on deal volumes and sizes as more assets enter the market and buyer/investor capacity becomes stretched; uncertainty as regards the US economy and the US's approach to global issues, in particular with a new Trump administration; a trend towards trade protectionism and tariffs; and the potential for valuation gaps persisting in some deals to complicate negotiations.
In particular, we expect the following conditions to support reasonable growth in 2025:
- More economic stability than the previous two years.
- A stronger supply of deals, with those held back now coming to market and a backlog of distressed assets being sold.
- More demand for assets, with the potential for a strong US dollar encouraging cross-border investment from US buyers, investors needing to spend dry powder, and more confidence and available cash among buyers and investors.
- An urgent need for transformation, internationalisation, change and adaptation to face global threats, developments and challenges.
- Easier access to traditional funding with lower interest rates, continued access to the newer source of private capital and new government funds backing transformative or earlier-stage businesses.
- Business-friendly incentives and regulatory changes, including to encourage listings on key markets, Singapore promoting itself as a stable gateway to Asia, and India looking to deregulate various areas to push dealmaking and investment.
Our lawyers predict that, on the whole and given the anticipated market conditions, the deal terms and deal process trends we have seen in 2024 will continue into 2025, though there may be a slight movement towards more comfort around pricing and risk and therefore we may see terms become slightly more balanced rather than buyer/investor friendly.
Key sectors to watch in 2025
The sectors we anticipate will account for a large portion of transactions in 2025 include:
• Technology, Media and Communications.
• Energy and Energy Transition.
• Life Sciences and Healthcare.
• Financial Services.
• Retail and Consumer.
• Real Estate.
