While dealmakers waited for an improvement in conditions in inflation, interest rates and debt financing and to see the effect of those macroeconomics on target performance over a substantial financial period, the global mergers and acquisitions (M&A) market did not take off in 2024 as the industry had hoped for.

As a result, deal activity did not gain the anticipated momentum, according to Herbert Smith Freehills’s yearly M&A report titled ‘Gaining Altitude’.

The report notes that deals took longer to sign, timescales were lengthened without the typical competitive tension of an auction process, combined with more emphasis on the right financing and robust valuations and diligence, and deals also took longer to close.

On occasion, transactions were announced before secured financing and often faced significant regulatory clearance periods and a heightened risk of regulatory intervention.

Nevertheless, the report notes that, on balance, 2024 was a better year than 2023 for global M&A, driven by the larger deals rather than activity across the board.

The ‘Gaining Altitude’ report, explains why there is optimism that activity will continue to build in 2025, but cautions that heavy lifting is likely to continue for some time.

"There remains significant pent-up demand for M&A. Although private equity and the broader private capital ecosystem have adjusted to longer hold periods, dealmakers are under pressure to return invested capital and deploy new dry powder,” says Herbert Smith Freehills global M&A head Gavin Davies. 

"We have seen that strategics continue to show strong appetite to accelerate transformational change through M&A as they face multiple structural transitions in energy, environmental, social and governance (ESG), digital and artificial intelligence. They also need to drive above-trend growth in their businesses to distinguish themselves from their peers."

In the report, lawyers from across Herbert Smith Freehills' global offices examine key legal challenges and issues in the current M&A environment.

This includes how to articulate the art of – financing – the deal; the "give and take" with regulatory risks; a deeper dive into due diligence considerations; a return to old terms during tough conditions; and the change in investment routes to match shifting geopolitical winds.

The report indicates that the global landscape has shifted, with geopolitics becoming more complex to navigate.

"Despite geopolitical tensions and uncertainty, businesses continue to show resilience in pursuing deals, adopting innovative deal structures to adapt to the new normal. In some cases, M&A can even provide a solution to some of the challenges they face,” says Herbert Smith Freehills M&A partner and chairperson Rebecca Maslen-Stannage.

Moreover, capricious market conditions and less-structured sales processes have increased the focus on due diligence.

"We are seeing that the time taken for due diligence exercises has become noticeably longer and that there is a greater focus on ESG considerations. It seems that these more rigorous, holistic due diligence processes and emerging areas of enquiry are here to stay,” says M&A partner Caroline Rae.

The report also looks at the continued elevated pace of shareholder activism; 2024 witnessed the highest global proportion of activity initiated by first-time activists since 2020.

"A challenging M&A environment has encouraged shareholders to turn their attention towards strategy and operations-related demands. Nevertheless, M&A continues to be a prominent part of the global activist toolbox with shareholders playing an increasingly pivotal role in influencing and shaping deals,” says cross-border public and private M&A specialist Laura Ackroyd.

"Although it is tough to make predictions, what we are certain of is that agility, creativity and resilience will be valued qualities in deal teams and advisers for the dynamic and eventful conditions we expect for 2025,” adds Davies.