Wachtell Lipton: Mergers and Acquisitions—What Awaits in 2025?

After a relative low in global M&A in 2023, the past year witnessed a moderate uptick as
the pandemic receded further into the rear-view mirror, the U.S. economy stabilized, inflation declined (albeit with some renewed concern toward the end of the year), financing markets brightened, albeit modestly, and equity markets climbed ever higher. Global M&A deal volume reached $3.17 trillion, reflecting a 9.8% increase compared to 2023. Though overall volume increased, heightened regulatory enforcement, among other factors, led to fewer very large transactions in 2024. No deals surpassed the $40 billion threshold in 2024, and there were only four $25 billion-plus deals announced in 2024, below the average of seven deals per year over the prior three years. The impending return of President-elect Donald Trump to the White House, with the Republican party having majorities in both houses of the U.S. Congress, is expected to bring a more business friendly, deregulatory approach to policymaking, and further solidifies widespread expectations among market participants that M&A activity will increase in 2025.But for any particular company, or deal, the details matter. It remains to be seen whether the global environment will be hostile to M&A that crosses borders (for example, in response to or as part of tariffs and trade wars); geopolitical volatility remains high, including in several war zones; tech-lash has not gone away and may even increase with respect to the largest technology companies; market valuations are high and interest rates may not decline further. Opportunity surely will exist, and many companies have been waiting for regulatory change prior to commencing in-industry M&A. Here, we review some of the key themes of 2024 and our thoughts on what may lie ahead in the new year.
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Regulatory Reset. The upcoming change in the U.S. administration is likely to bring a significant reduction in overall aggressiveness of the federal antitrust agencies’ M&A enforcement. The Biden administration clearly telegraphed its expansive views of harms remediable by the antitrust laws, including in its 2023 Merger Guidelines, and sought to rein in transactions through a variety of means, notably including litigation seeking to block a number of deals, sometimes successfully (e.g., Albertsons/Kroger in the grocery space; JetBlue/Spirit in the airline industry), and sometimes not (e.g., Microsoft/Activision Blizzard in gaming). The President-elect’s selection of Andrew Ferguson to lead the Federal Trade Commission and Gail Slater to lead the Department of Justice’s Antitrust Division suggests that the new administration will adopt a more restrained approach to M&A  antitrust enforcement. Some of this conclusion is, however, sector-specific. After several years of a challenging regulatory environment for bank M&A, the bank regulatory agencies are widely expected to be more receptive to bank mergers that meet the required statutory factors and to reducing the burdens for new entrants. There may also be areas, such as technology transactions, where enforcement policy continues to be more assertive than potential M&A participants would hope. So too, we expect CFIUS transaction review to be active, and industries regarded as being strategic to U.S. national interests may find themselves with fewer, domestic-only options for transaction partners. In the face of continuing uncertainties in the United States and abroad, we expect the provisions of transaction agreements that allocate regulatory risk to remain an area of focus. Transacting parties should assume that regulatory review processes will be burdensome, and while appropriate drop-dead dates may shorten, one area deserves prompt regulatory action—eliminating or revising the amended filing and disclosure requirements under the Hart-Scott-Rodino Antitrust Improvements Act, which dramatically expanded the information, effort and time required to commence HSR review, with little, if any, relevant benefit to the agencies.

Optimism for Bank M&A. The incoming Trump administration has fueled a burst of optimism for a resurgence in bank M&A, which had suffered from a challenging regulatory environment under the Biden administration. A rare exception was Capital One’s $35 billion pending acquisition of Discover in February 2024, which was one of the largest announced M&A transactions globally across all industries and the largest announced bank M&A transaction in the United States since the financial crisis. In 2024, M&A across the broader financial services sector remained active in asset management, insurance, payments, fintech and other areas. In contrast, bank M&A was negatively impacted by heightened supervisory expectations following several large 2023 bank failures. In addition, protracted approval processes and the Department of Justice officially departing from longstanding guidelines for reviewing bank M&A transactions, as noted above, also dampened deal activity. However, in no sector is the adage that “personnel is policy” truer than in banking, and industry expectations for the next several years are high. Industries to Watch. Industries that experienced significant activity in 2024, or may be poised for additional dealmaking in 2025, include energy, technology and healthcare. After a boom in energy M&A at the end of 2023, strategic realignments and consolidation continued to transform the energy sector in 2024 despite a slight decrease in overall volume from 2023, with significant transactions including Diamondback/Endeavor and ConocoPhillips/Marathon Oil.

Heightened activity in energy M&A is expected to continue in 2025, including as a result of an anticipated lighter regulatory touch under a new administration, increased AI-driven energy demand from data centers and the strong industrial logic of enhanced scale in the sector.

Technology transactions, meanwhile, accounted for the largest share of M&A activity of all industries in 2024 at 16%, reclaiming the mantle that sector had held for several years before being outpaced by energy transactions in 2023. Technology transactions showcased a focus on AI, cybersecurity and cloud technologies, including the Synopsys/Ansys and HPE/Juniper transactions, and telecom growth, including the T-Mobile/Metronet, T-Mobile/Lumos, Verizon/Frontier and Bell Canada/Ziply transactions, which reflected significant investments into fiber infrastructure. Another industry to watch is healthcare, which declined in overall volume in 2024 due to a dearth of large transactions, but may make a comeback in 2025 as large pharma and medical device players continue to look to acquisitions to drive growth—a trend we have already begun to see with the Stryker/Inari transaction announced at the start of this year. Private Equity Evolution. With (modestly) lower interest rates, elevated volumes of untapped dry powder and financing markets offering options from a broader array of capital providers (including sponsors that have transformed themselves into alternative asset managers that can provide structured solutions across the entire capital stack), sponsors continued to deploy capital in creative ways in 2024. Private equity exits increased from $754 billion in 2023 to $902 billion in 2024, but total exit volume remained well below pandemic-era highs. Muted M&A exit opportunities, coupled with an IPO market in which significant transactions were few and far between, exacerbated a growing industry-wide “sell-side” backlog. With many funds nearing the ends of their life cycles, there continues to be much focus on diverse exit routes, such as cross-fund deals, continuation funds, minority deals and co-control deals, and limited partners have continued to be active in the secondary market. Additionally, an increasing number of transactions have involved multiple sponsors in club deals or sponsors partnering with strategics to tackle deal size, execution risk, investment horizon and other complexities, trends that we expect to continue in 2025 and to facilitate “partnered” exits. As activity in the broader M&A market increases, expect sponsors to continue to act opportunistically as buyers, sellers and financing parties, leveraging their trademark creativity and willingness to grapple with complexity in order to unlock value.

Activism & M&A. Activism engagement remained robust in 2024, with a 6% increase in volume of global and U.S. campaigns compared to 2023. While major activists continue to dominate campaigns, in 2024, new or occasional activists led a record number of publicly disclosed campaigns. In addition, companies continued to face attacks from multiple activists at once, whether acting together in a “wolf pack” or “swarming” the company independently and with differing demands. Although campaigns have focused on a range of matters—including board and CEO changes, capital allocation, cost-cutting and other operational, strategic and governance matters—M&A continued to be a prominent theme, with activists focusing on M&A in 22% of 2024 publicly disclosed campaigns. In a number of undisclosed campaigns, we regularly see activists disputing the success of prior M&A urging divestitures or spinoffs to “reduce the harm.” As the regulatory environment and market conditions become more favorable for M&A in 2025, activists should be expected to target boards for missing M&A opportunities as one more arrow in the quiver. Companies that were able to resolve an activist situation in 2024, but continue to underperform this year, may find themselves subject to a second round of activism focused on the implementation of a publicly disclosed “strategic alternatives” review.

|A Busy Year in Delaware. There were numerous important legal developments in 2024 in Delaware, the most popular place of incorporation of large American businesses. A series of decisions by the Court of Chancery called into question common M&A market practices: holding that a merger was not properly statutorily authorized based on the process by which the larget’s board of directors approved the merger agreement (Activision Blizzard); striking down a variety of provisions in a shareholders agreement as impinging on the authority of the board of directors to govern the business and affairs of the corporation (Moelis); and finding that a company could not pursue damages (based on the agreed merger consideration) against a buyer for breaching a merger agreement (Crispo). The Delaware legislature reacted quickly with amendments to the Delaware General Corporation Law responding to each of these decisions, although the process for approving those amendments was more contentious than usual. The Delaware Court of Chancery also rejected Tesla’s attempted ratification of Elon Musk’s enormous pay package after the Court previously struck it down (Tornetta v. Musk), and permitted a challenge to TripAdvisor’s decision to reincorporate in Nevada to survive a motion to dismiss (Palkon v. Maffei). In addition, the Delaware Supreme Court held that the MFW framework—requiring approval of both a special committee of independent directors and a fully informed majority of the minority shareholders in order to shift the standard of review to business judgment—applies to all transactions with controlling shareholders, not only squeeze-out mergers (In re Match Group, Inc.). The Match decision continues the trend of not only expanding the scope of heightened review of any transaction involving controllers, but also potentially puts the protections of the MFW doctrine further out of reach: the Court held that every single member of a special committee must be “wholly independent” and “not that only a majority of the committee must be independent.” Taken together, these cases should cause transaction parties to closely consider the deal risk inherent in a majority-of-the-minority shareholder approval condition, and whether it is worth the increased risk of trying, but failing, to satisfy MFW. Other states, such as Nevada and Texas, are seeking to use the current Delaware corporate climate, especially in situations involving controlling shareholders, as an opportunity to chip away at Delaware’s dominant share of the market for incorporations. Given the range of decisions relating to M&A in Delaware in 2024, it can be expected that litigation will be a consistent feature in the interlocutory period for most M&A deals, especially those involving interested parties or controllers.

Lightning Round—Heading into 2025. In addition to the above, the trends and topics that we will be monitoring in 2025 include:

-Hostile and unsolicited transactions, which accounted for approximately 11% of global M&A activity in 2024, may experience a boost from relaxed regulatory enforcement and increased dealmaking interest generally.
-Cross-border M&A, which grew by 5.9% in 2024 compared to 2023 and represented 32% of global M&A volume last year, will require even greater care as protectionist policymaking and geopolitical tensions persist.
-For the first time, U.S. companies will grapple with “Reverse CFIUS,” which went into effect on January 2, 2025 and gives the Committee on Foreign Investment in the United States the authority to review outbound foreign investments by U.S. businesses for potential national security issues in countries of concern, as determined by the President.
-Artificial intelligence will continue to be a focal point, as AI advances and adoption affect productivity across virtually all industries, and as the companies that do everything from offering AI services to providing the chips, data centers and energy required to power them explore opportunities for inorganic growth and capital-raising.
-IPO activity may pick up—and affect the dynamic for sales processes by providing private companies with a credible alternative to an M&A deal—if markets cooperate and Wachtell, Lipton, Rosen & Katz long-anticipated offerings by companies that have commanded substantial private valuations (including Stripe, Shein and Databricks) are finally able to list.
-The real estate industry’s focus on technology infrastructure assets seems unlikely to subside in the near-term, while office, retail and other sectors look to continue their comeback.
-Businesses will need to pay close attention to tax legislation expected from the Republican Congress, which may include extending some or all of the expiring provisions of the Tax Cuts and Jobs Act enacted under the first Trump administration or further reductions in corporate tax rates. These changes could potentially be offset, in part, by the imposition of tariffs on imports, which may be implemented through executive order. While these developments could have significant implications for M&A transactions, as well as for companies and individuals more broadly, it remains to be seen what tax legislation will ultimately emerge under the incoming administration.
-Although traditional financing markets are open and available, private credit, which has claimed an increasing share of M&A financing in recent years (particularly in private equity transactions), will be poised for further growth and larger transactions in 2025.
-Counterparties will need to continue to proactively tailor their M&A deals, including social provisions and risk allocation terms, as well as messaging and outreach strategies, to account for labor considerations, which have generated attention in a number of recent transactions (such as U.S. Steel/Nippon) and are likely to remain an area of focus, with the potential to attract scrutiny across the political landscape M&A activity shows optimistic signs of growth in 2025, as market participants anticipate more favorable macroeconomic conditions and reduced regulatory scrutiny from the new U.S. administration. But deals are not getting easier. Dealmakers will need to navigate market, regulatory, political and other developments, in the context of a new and active U.S. administration, as well as a number of significant political changes in major jurisdictions such as Canada, Mexico, France, Germany and the United Kingdom, to name just a few. Dealmaking will need to be both careful and creative to navigate the changing times.