Building on the insights shared in our previous blog about what 2025 may offer, we’re continuing the discussion by highlighting key developments shaping this exciting year. From a rebound in M&A activity and the continued rise of private credit to the evolving ESG landscape and rapid advancements in AI, 2025 is already proving to be a transformative year for global markets. Here, we dive deeper into these trends and their potential impact.
M&A
A rebound in dealmaking and exit activity is expected in 2025, building on momentum from late 2024. While the first half of 2024 was marked by caution, confidence in M&A picked up towards the end of the year. This recovery is expected to continue, particularly in sector-specific transactions influenced by regional and global economic conditions. In the UK, mid-market deal activity is projected to strengthen as the gap between buyer and seller valuations narrows, with deferred considerations and buyer equity playing a greater role in structuring deals. The UK’s public M&A market saw a significant shift in 2024, with a notable rise in large-scale transactions. There were 17 deals exceeding £1 billion, a dramatic increase from just four in 2023. Although the total number of firm offers remained steady (58 in 2024 vs. 60 in 2023), the total deal value more than doubled, reaching over £50 billion. Several factors are expected to drive dealmaking in 2025. The UK’s CMA is adopting a more proportionate approach to merger reviews, which may reduce regulatory delays. Share-for-share transactions, which allow acquirers to avoid borrowing, are gaining traction and expected to continue. Private equity sponsors are also set to re-enter the UK public takeover market, increasing competition for high-value assets as interest rates stabilise or decline.
Private Credit
Private credit continues to grow as an alternative to traditional bank lending, reaching an estimated $1.5 trillion in 2024 and projected to exceed $2.6 trillion by 2029. This growth is driven by tighter bank lending and rising demand for bespoke financing, particularly linked to private equity. With over $1.4 trillion in dry powder, private equity firms expect increased deployment, boosting direct lending and asset-based finance. Despite higher financing costs, credit quality remains stable, with a focus on non-cyclical industries. The sector’s adaptability is expected to solidify its role in 2025, with opportunities in hybrid capital and refinancing solutions.
The Growing Role of Continuation Funds
Continuation funds, or GP-led secondaries, gained significant traction in 2024 as liquidity constraints made traditional exits more challenging. These transactions allow sponsors to extend ownership of high-quality assets, providing additional time and capital for growth while offering investors flexibility in their holdings. One of the key advantages of GP-led secondaries is the alignment of interests. GPs often reinvest carried interest and increase their committed capital, ensuring they remain incentivised alongside new and existing investors. Additionally, these deals mitigate blind pool risk, offer more predictable returns, and provide liquidity options for LPs who may need to exit. As market conditions improve in 2025, continuation funds will remain an attractive tool for both sponsors and investors. With falling interest rates and stabilising valuations, they present a compelling way to maintain exposure to strong-performing assets while avoiding the volatility of traditional exit routes.
Evolving ESG Landscape and Regulatory Shifts
ESG and sustainable investing continue to evolve, with differing approaches in the US and Europe. The US faces an “anti-ESG” backlash, while the EU is navigating updates to key sustainability directives. In the UK, the FCA’s updated Stewardship Code is set to enhance transparency and disclosure standards. Moreover, the regulatory environment, both globally and domestically, is poised for significant changes. From Trump’s deregulation agenda in the US to the UK’s updates on corporate governance and fraud prevention, these shifts will create new opportunities and challenges across various sectors. Tax changes, particularly in the UK, will also influence deal timing and valuations, affecting sectors differently based on their structure and workforce flexibility.
AI’s Rapid Evolution: Market Shifts and Emerging Challenges
The development and influence of AI remain pivotal, with major tech firms like Microsoft and Nvidia investing heavily in the sector. Meanwhile, regulatory landscapes such as the EU AI Act are reshaping compliance strategies, with the UK adopting a more flexible, pro-innovation stance. The AI market was shaken this week by the emergence of DeepSeek, a Chinese AI startup that launched a low-cost, high-performing AI model rivalling OpenAI’s ChatGPT. Built using Nvidia’s older A100 chips (now banned for export to China) DeepSeek’s efficient “inference-time computing” approach has raised questions about the future demand for high-end AI hardware. The impact was immediate: Nvidia’s stock plunged 17%, shedding $600 billion in value, while other AI-related stocks, including ASML and Broadcom, also suffered losses. DeepSeek’s rise underscores disruptive AI potential and geopolitical tensions. While praised for its open-source approach, concerns over data privacy persist due to its use of Chinese servers. Its emergence challenges AI cost structures and U.S. tech dominance, with uncertain global traction.
Summary Remarks
As 2025 unfolds, key market trends are taking shape across M&A, private credit, and AI. Deal activity is rebounding, private credit continues its rapid expansion, and evolving regulations are reshaping investment strategies. Meanwhile, AI’s rapid advancements, exemplified by DeepSeek, are challenging industry norms and market valuations. Navigating these shifts will require adaptability, strategic foresight, and a keen eye on both opportunities and risks.