Mergers & Acquisitions (M&A) activity reflected strategic consolidations and growth-focused investments. Whilst deal volumes have declined compared to the pre-pandemic highs, deal values remained robust, particularly in the mid-market, and grew relative to 2023. Strategic buyers sought acquisitions to fill capability gaps, especially in areas such as AI-driven software, quantum computing, and IoT (Internet of Things).
Private equity (PE) continued to be active, albeit with higher interest rates and increased costs of debt financing, investors leaned into platform-building strategies, focusing on bolt-on acquisitions to build value incrementally. The focus was not just on growth potential, but also on operational efficiencies and synergies that could be quickly realised. An increasing number of privately owned software rollups is adding to competition for deals in an already crowded market, putting pressure on origination, and adding to the challenge of PE funds deploying capital.
With GenAI having bucked the Gartner trend and gone straight from hype to enterprise ready, businesses are having to invest to keep up. Innovation that has a meaningful impact on user experience, scope or value creates an opportunity to grow (or churn customers) so whilst in its infancy, this is likely to result in some winners and losers.
The UK budget accelerated some transactions, but it looks like the budget has not changed the M&A landscape fundamentally, and our clients remain focused on doing the right deal, at the right time.
Data is driving an ever-growing gap in outcomes:
- Management teams that can demonstrate a data-rich environment and data-driven decision making are increasingly sought after (and therefore valued) by investors;
- Process efficiency, driven by diligence timeframes, is increasingly contingent upon data readiness and the ability of management teams to support key investment topics with granular data. Increased value is on the table where this drives efficient processes and provides investors the comfort, they need in key areas.
Key trends driving 2024 activity included:
- Generative AI and Machine Learning: The buzz around generative AI transformed into tangible M&A activity, with both startups and established players becoming targets. Companies sought to acquire proprietary AI algorithms, datasets, and engineering talent to stay competitive in a rapidly evolving landscape.
- Cybersecurity Consolidation: With an ever-growing threat landscape, cybersecurity remained a top priority. M&A activity focused on expanding capabilities in areas like threat detection, cloud security, and endpoint protection, as businesses aimed to fortify their defences.
2025: Optimism Amid Challenges
Despite lingering macroeconomic headwinds, such as persistent inflation and geopolitical uncertainties, the sector remains poised for growth, driven by its foundational role in enabling innovation across industries. Here’s what to watch for:
- AI Maturity Driving Strategic Deals: As generative AI technologies mature, expect to see a shift from speculative investments to strategic acquisitions focused on commercialisation. Companies will prioritise targets with proven business models and scalable technologies
- AI Adoption: The speed of development has led to gaps in training, governance and adoption behaviours. Companies will look to take better control of opportunities and implement AI strategies and individuals that will both drive tangible results and future-proof industries
- Sector-Specific Convergence: The convergence of technology with Healthcare, Automotive, and Industrial sectors will accelerate. Areas like Health Tech, Autonomous Vehicles, and Industry 4.0 solutions are expected to see significant deal activity as companies seek to integrate cutting-edge technologies into traditional industries
- Post global elections stability: This will lead to a release of spend, withheld last year due to uncertainty
- Resurgence of IPOs Boosting M&A: The Initial Public Offering (IPO) market, which showed signs of recovery in late 2024, should gain momentum in 2025. A robust IPO market often acts as a catalyst for M&A, as public companies look to deploy fresh capital for strategic acquisitions
- Sustainability as a Cornerstone: ESG considerations will continue to influence deal-making. Investors and acquirers will seek targets that align with sustainability goals, whether through innovative technologies or eco-friendly business practices.
What does this mean for companies?
- Reflect on the need to onboard at CTO or Chief AI Officer. This can be both an offensive and defensive strategy to maintain and drive competitive edge.
- Understanding end customer dynamics remains as important as ever to maintain organic growth and showcase why the business wins relative to its peers. In a low growth environment both qualities will help drive value in the medium and long term.
- Ensure your values and culture are clear and known in the organization. A people strategy harnessing strong ESG credentials will help the business remain relevant and aid employee retention.
Challenges to Navigate
While the overall outlook is positive, 2025 will not be without challenges. Geopolitical tensions, particularly involving key technology hubs like Taiwan, could disrupt supply chains and investor confidence. Additionally, the cost of capital will remain a key consideration, requiring dealmakers to carefully balance risk and return.
