EY's Mitch Berlin on Strong July M&A Activity, Driven by Tech and AI

M&A Momentum in 2025

• 📈 The year began with a slow start, but July showed very strong M&A activity, indicating potential for a busy and robust second half of the year.
• 💡 There is a significant pipeline and backlog of deals, with clients actively preparing deal strategies.
• ⚠️ While the year's activity has been volatile, current conditions feel different and more promising for deal-making.

Factors Influencing M&A Confidence

• 🏛️ The regulatory and governance environment, potentially influenced by a less stringent approach compared to previous administrations, is seen as a tailwind.
• 💰 Confidence in capital markets and a clearer outlook on tariffs are contributing factors.
• 🤝 The bid-ask gap has significantly narrowed, from two points a few years ago to about half a point, making deals more affordable and aligning buyers and sellers.

Interest Rates and Deal Making

• 📉 While deals are still happening, a lower cost of capital is desired, and the market anticipates further interest rate reductions.
• 📊 Expectations of another two turns down in interest rates this year are fueling optimism for continued deal activity.

Key Sectors for M&A Activity

• 💻 Technology remains the dominant sector for M&A, driven by the race for sophisticated AI technology and its application in modernizing businesses.
• 🚀 Acquisitions are identified as the fastest way for businesses to acquire advanced AI capabilities.
• ⛽ Other notable sectors include oil and gas, life sciences (due to cash reserves and R&D pipeline needs), and a surprising surge in media and entertainment deals.

Economic Backdrop for the Next Year

• 📊 The base case economic outlook factors in flat to declining inflation, a slight increase in GDP, and two turns down in the Fed borrowing rate.