The headwinds that could slow down M&A this year

This was supposed to (and could still be) the year that M&A returns in a big way.

But with a regulatory surprise (more on that below) and a trade war heating up, and some newfound economic anxiety to boot, the dealmaking calculus has shifted. Here’s what experts told us about the building M&A headwinds and how the rest of the year might pan out.

Jake Henry, co-leader of McKinsey’s M&A practice, told CFO Brew that while he’s ultimately bullish on the M&A market this year, “the uncertainties that have constrained M&A still haven’t been entirely released.”

Potential M&A dampeners include minimal change in interest rates, the Trump administration enacting tariffs on trading partners, and regulatory constraints, he said. But there’s still an overall deregulatory attitude from President Donald Trump. Along with that is significant pent-up demand to do deals among private equity firms.

“Eventually the tailwinds will prevail, but I think it’ll probably be midyear or even toward the second half before you actually see [the M&A market] meaningfully shift,” Henry said.

Possible snags. Experts said tariffs add a new wrinkle to dealmaking, potentially causing some acquiring companies to tap the brakes.

“We went into this administration expecting deals to spike because of deregulation, but there’s the tariff uncertainty,” Al Paul, EY Americas operating model effectiveness leader, told us. “So everyone’s got to hold onto cash, because cash is king. Cash is what’s used primarily in M&A, especially when you’re buying somebody smaller.”

And while the executive branch has made quick work of dismantling entire agencies, one decision caught some off guard. The FTC and DOJ announced last month that they would keep in place Biden-era guidelines for reviewing mergers.

In a memo to staff, FTC Chairman Andrew Ferguson wrote that the decision follows 30 years of precedent, and that if “merger guidelines change with every new administration, they will become largely worthless to businesses and the courts.” Still, the decision surprised many on Wall Street, CNBC reported.

Michelle Mantine, partner at Reed Smith and leader of the law firm’s antitrust and competition team, told us clients were concerned following the FTC announcement whether this meant more of the same level of “aggressive antitrust enforcement” seen under Biden. To those concerns, she said Ferguson pointed out that the Biden guidelines are “not that far off or very different from prior guidelines; a lot of them are relatively the same and based on case law.”

Mantine said she hopes federal regulators will apply the guidelines “to the facts in a thoughtful way that reflects substantive antitrust analyses.” She added that she wouldn’t be surprised if the FTC eventually revises the guidelines.

“But I do think that the enforcers right now are more focused on the application than they are with the actual guidelines, it seems, based on the commentary,” she said. “So we really need to let time take its course and see how they play out when they’re actually applied to the given facts and circumstances.”

Looking ahead. Just as organizations may face strong headwinds in M&A, they may also be under tremendous pressure to move ahead on a deal anyway.

In its annual M&A report, McKinsey called private equity “one of the most compelling forces that could boost M&A in 2025.” PE firms are sitting on an estimated $2+ trillion in dry powder, which refers to capital that’s been committed but is unallocated. The average exit hold time reached 8.5 years in 2024, which the firm wrote is “an all-time high.”

“It’s like a tempest in a teapot over there,” Henry said, adding that further movement of interest rates by a half-point to a point could “suddenly change deal model values.”

Now five years removed from the onset of the Covid-19 pandemic, PE firms also now have “true representative financials to be able to understand the trajectory of a business, as opposed to looking at the disrupted times during the Covid era,” Henry said, “which makes it easier to understand the true trajectory of a business and to ultimately value those assets.”

“It is a busy time in these [PE] firms and a harbinger, I think, of things to come,” he said.

Mantine said organizations should bring in antitrust lawyers early in the dealmaking process so they can get “in front of any sort of substantive antitrust issues.” They should have a clear picture of the antitrust risk during the negotiation stage, so they can determine if they’re comfortable with the level of risk and perhaps even share or transfer the risk between parties.