Are mergers and acquisitions about to heat up again?

This was supposed to be the year that mergers and acquisitions across corporate America picked up again. For context: Merger activity exploded in 2021, then fell each of the following two years, according to EY Parthenon. The number of mergers appears to have picked up again this year, but not as quickly as some had hoped.

If you run a company, choosing to buy or merge with another company is a complicated and risky move.  So the best time to do it is when the broader economy feels stable, said Brian Quinn, a professor of corporate law at Boston College Law School. 

Executives, he said, want to look ahead, “and have a general idea of what the future is going to hold with respect to the macroeconomic environment, whether or not they can make money, given the models that they put together.”

Much of 2024 was not a particularly good time for that, said Christina Sautter, a mergers and acquisitions legal expert and law professor at Southern Methodist University.

“There was a lot of, still, cautiousness this year with respect to macroeconomic and political landscapes,” she said.

Business leaders were hoping the Federal Reserve would cut interest rates, and that didn’t happen until September. And they were also waiting for the outcome of the presidential election. Now, they have a bit more clarity.

For one, President-elect Donald Trump’s administration, Sautter thinks, could take a more hands-off approach to mergers. “And so I think that that is really going to push deals forward,” she said.

Plus, there’s an expectation that the Fed will keep cutting rates, which could lower borrowing costs for companies looking to merge.

But rates won’t likely go all that low, said Suzanne Kumar, an executive vice president at Bain & Co.

“This shift towards lower interest rates will still end up at a place that is likely to be relatively high versus the very heady days of early 2021 when no or very low interest rates fueled such high M&A activity,” she said.

Those “heady days” were a really good time for companies looking to get bought up. Kumar said they were highly valued.

“Those numbers are still in sellers’ heads,” she said. But companies looking to acquire them don’t want to pay as much. 

The gap between buyers and sellers has started to narrow though, Kumar said. If it keeps trending that way, we could see more M&A action next year.