Global M&A Market Rebounds: Europe Leads Decade-High Dealmaking

Amidst a backdrop of persistent global economic headwinds and complex geopolitical landscapes, the mergers and acquisitions (M&A) market has demonstrated unexpected resilience in the first half of 2025. This period, defying initial trepidation, showcases a notable recovery in both deal value and volume, particularly within Europe, which is now poised for its strongest M&A performance in over a decade.

• Global M&A activity reached $2.0 trillion across 24,793 transactions in H1 2025.
• This represents year-on-year increases of 13.6% in value and 16.2% in volume.
• Europe is on track for its highest M&A count in over a decade, signaling a recovery in confidence.
• The ‘valuation gap’ between buyers and sellers is narrowing due to easing inflation and interest rates.
• Strategic imperatives like the green transition, AI, and defense spending are driving M&A.
• European regulators are shifting focus to fostering large ‘industrial champions’.

Global M&A activity recorded a substantial rebound, with total deal value reaching $2.0 trillion across 24,793 transactions in the first half of 2025. This marks year-on-year increases of 13.6% in value and 16.2% in volume, according to Pitchbook’s latest M&A report. Europe, in particular, has seen robust dealmaking, with current trends indicating the potential for its highest M&A count in over a decade, signaling a broad-based recovery in investor and corporate confidence.

Strategic Drivers and Market Dynamics

A significant impediment to deal finalization in recent years, the ‘valuation gap’ – the divergence between buyer and seller expectations on asset worth – is finally beginning to narrow. This gap intensified in 2023, as companies that acquired businesses during the M&A boom of 2020 struggled to reconcile their selling price expectations with a market shaped by rising interest rates, inflation, and tariffs. While mechanisms like ‘earn-outs’ were employed to bridge these differences, the recent easing of inflation and interest rates has simplified financial modeling for buyers, effectively reducing this structural friction and facilitating smoother negotiations.

Beyond macroeconomic shifts, strategic imperatives are profoundly reshaping M&A activity. Many corporate leaders are re-evaluating their core business models, driven by the increasing prominence of themes like the green transition and artificial intelligence. This strategic re-calibration often necessitates M&A for divesting non-core assets or acquiring capabilities essential for future growth. Geopolitical shifts are also influencing portfolio decisions, as firms seek to optimize market exposure. Furthermore, sectors with tight margins, such as the automobile and chemical industries, are experiencing increased consolidation pressure, partly due to tariff impacts from the US government. Conversely, increased defense spending globally, spurred partly by entreaties from President Donald Trump, is making aerospace and defense businesses attractive M&A targets. The IT sector in Europe notably led this trend, recording a 36.6% quarter-on-quarter increase in M&A value during Q2 2025.

In Europe, a notable shift in regulatory philosophy appears underway, aiming to foster industrial champions capable of competing globally. This evolving perspective, significantly influenced by the September Draghi report which advocated for greater consolidation, marks a departure from historical caution regarding large mergers. Traditionally, the European Commission has been criticized for blocking significant deals, citing competition concerns, as seen with past proposed mergers like Siemens Mobility-Alstom or Ryanair-Aer Lingus, and the ongoing stall of Mars-Kellanova. However, there is a growing recognition within the EU that scale does not inherently equate to anti-competitiveness, particularly in globally competitive sectors like financial services or defense, where European champions are deemed crucial. This strategic imperative is underscored by increasing military spending across member states, particularly in response to geopolitical tensions and calls from President Donald Trump for greater defense investment.

The M&A market’s trajectory for the latter half of 2025 appears balanced, characterized by a complex interplay of optimism and caution. Easing interest rates and a renewed corporate appetite for strategic scale are counteracting persistent economic risks and trade policy uncertainties, particularly those related to tariffs under President Donald Trump’s administration. Key indicators to watch include geopolitical developments in Ukraine, further regulatory shifts, and interest rate decisions from the European Central Bank and the Federal Reserve. A crucial factor for sustaining momentum will also be the clearance of the backlog in private equity exits, which would unlock significant capital for new investments. While the market may not yet be ‘red hot,’ diligent execution and rigorous valuation processes are increasingly enabling deals to successfully close.