Writer: Mirella Franzese
December 2025 — This year’s economy bent, but didn’t break. The same was true for dealmaking in 2025, according to J.P. Morgan experts. While the first half of the year saw a significant dip in activity due to economic pressures, U.S. mergers and acquisitions made a sharp turn in Q3, driven by a shift toward larger deals and more strategic transactions.
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President Donald Trump’s second term initially ushered in high hopes for capital markets. M&A activity surged by 43% year over year in the first quarter, buoyed by the announcement of several mega deals above $5 billion.
Yet, the following quarters fell short of expectations as higher rates, taxes and tariffs significantly stalled M&A, initial public offerings (IPOs) and buyouts. These factors combined to push many private equity sponsors to hold assets longer, limiting both fundraising and deal flow, according to Dan Sarver, managing director at the Pennsylvania-based investment bank Confluence Advisors.
“When uncertainty is high, buyers often hesitate as they struggle to underwrite future performance, which results in more conservative offers, lower valuations, heavier reliance on earnouts, or in some cases, walking away from a deal entirely,” Sarver told Invest:. “These dynamics have contributed to fewer completed transactions.”
Nearly one in every three companies paused or revisited pending deals as a result of new tariffs, according to PwC’s 2025 midyear outlook for U.S. deals.
The higher interest-rate environment also made it more difficult to justify deals from a cash-flow perspective, which reshaped buyer and seller dynamics, said United Community Bank’s Tennessee State President Kelley Kee. “You need investors with the ability to front more equity. That’s a big challenge,” Kee told Invest:.
Additionally, the buyer-seller valuation gap remained a major drag on deal flow. According to EY, sellers often still benchmarked against the inflated market highs of 2021, while buyers applied more conservative valuation metrics. As a result, many PE firms delayed dealmaking until valuations narrowed.
Shifting headwinds
Despite a wobbly three quarters, the fourth quarter paved the way for a clearer recovery as some headwinds eased. According to Sarver, recent tax legislation created greater certainty, interest rates moderated and tariff risks became more defined — contributing to a more positive near-term outlook.
“With those improvements, we expect M&A activity to gain momentum, particularly as we move into 2026,” Sarver told Invest:.
The rebound effect
In October, U.S. capital markets rallied, unlocking a wave of pent-up deals. Activity was further bolstered by a healthier equities market and a stockpile of liquidity.
Total deal value hit its highest inflection point of the year, climbing 146.5% from a year earlier. M&A activity also rose by 8.3% year over year, driven by a sharp increase in transactions above $1 billion.
For those larger transactions, deal values jumped 203% year over year, while volumes increased a more modest 70% — reflecting renewed confidence in big-ticket M&A.
“We haven’t seen this much activity in a single quarter since 2021,” said Eduardo Villa, managing partner at EY’s New Jersey office, in an interview with Invest:. “We’re seeing PE firms starting to exit investments, with around 215 exits in the first half of 2025. That is the biggest amount of activity we’ve seen since 2022. The private equity market is as active as the public market now.”
At the same time, the valuation gap is beginning to narrow, driven in part by broader industry consolidation, according to John Fitzgerald, president and CEO of the New Jersey-based Magyar Bank.
“Valuation gaps between community banks and potential acquirers remain, though with fewer independent institutions operating, we anticipate increased dialogue about mergers in the medium term,” Fitzgerald told Invest:.
Changing dynamics
Momentum entering 2026 is strong as dealmaking thawed through late 2025. But with deal volumes still well below the historic highs and deal values rising, the M&A landscape looks very different heading into the new year. Buyers are prioritizing fewer, larger and more strategic transactions, which suggests caution in the near-term and longer-term confidence, according to Baker Tilly Director Mary Roberts.
“The level of buyer due diligence has increased,” Roberts told Invest:. “PE groups and family offices (now) have high expectations in terms of what the sellers are required to provide.”
Roberts notes a growing focus on the quality of earnings — such as recurring revenue, operational efficiency, growth potential and strategic positioning — as buyers structure transactions to protect downside risk.
Despite the evolving dynamics, industry leaders remain optimistic about 2026. Analysts expect the number of deals inked to rise between 3% to 5%, while growth in deal values holds steady, particularly if tariff fears, interest rates and global trade tensions ease.
Want more? Read the Invest: reports.
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