Europe’s M&A Market Thrives Against All Odds

Resilience Amid Geopolitical Uncertainty

Current Landscape for Mergers & Acquisitions

In an environment marked by escalating geopolitical tensions and unpredictable trade policies, merger and acquisition activity has become more complex than ever. Companies are reassessing strategies, and deal makers must navigate new risks while maintaining momentum.

Key Obstacles

• Political Instability – Cross‑border negotiations often stall as governments adopt protectionist measures.
• Trade Restrictions – Tariffs and embargoes create cost unpredictability for involved parties.
• Regulatory Scrutiny – Antitrust and compliance checks become more stringent amid shifting global policies.

Executive Response

Despite these hurdles, seasoned leaders are persisting with strategic deals, recognizing that timing and certainty can still deliver lasting value. Their expertise lies in identifying opportunities where risk and reward align, leveraging flexibility and rigorous due diligence.

Strategic Takeaways

• Prioritize clear communication with stakeholders to manage expectations under uncertainty.
• Implement robust scenario planning to anticipate policy shifts.
• Maintain a diverse portfolio of potential acquisitions to buffer against rapid changes.

Global M&A Market Bounces Back Despite Uncertainty

Post‑Pandemic Momentum and 2025 First‑Half Performance

In a recent update from Pitchbook, senior research analyst Garrett Hinds highlighted that the M&A landscape continues to defy expectations amid a mix of economic and geopolitical challenges. He noted that “even with persistent macro‑economic headwinds—such as heightened recession risk, geopolitical instability, and renewed trade friction—the global M&A market remained remarkably robust in the first half of 2025.”

Key Figures from the First Half of 2025

• Total deal value: $2.0 trillion
• Number of transactions: 24,793
• Year‑on‑year growth in deal value: 13.6%
• Year‑on‑year growth in transaction count: 16.2%

European Market Outlook

While the global picture looks surprisingly upbeat, Europe is poised for even stronger results. If companies can replicate the first‑half 2025 deal volume, the European M&A count is set to record its best year in more than a decade, underscoring a resilient investment climate across the continent.

The valuation gap

Valuation Gaps Continue to Pose Challenges in Post‑Pandemic Dealmaking

Recovery in Dealmaking after 2023’s Economic Uncertainty

Last year marked a return to more active corporate transactions, following a period of heightened interest rates and market volatility in 2023. Nevertheless, many negotiations stalled because buyers and sellers could not agree on a company’s worth.

Why Valuations Remain Intractable

• Historical Context: A company that acquired a business during the 2020 M&A boom often expects a valuation boost by the time it considers selling in 2025, especially after spikes in interest rates, inflation, and tariffs.
• Seller Expectations vs. Buyer Reality: Lorenzo Corte, global co‑head of Skadden’s transactional practice, explained that sellers often hope for a higher sale price or a full return of investment, whereas buyers may be reluctant to pay that premium. When expectations clash, deals either fall apart or incorporate complex compensatory mechanisms.
• Complex Mechanisms: Earn‑out arrangements are a common solution. Here, part of the purchase price is deferred, with the amount payable later contingent on the company’s actual performance.

Influence of Current Economic Conditions

With inflation easing and interest rates stabilizing, the once‑prohibitive valuation gaps are narrowing.

Expert Insight

• Nigel Wellings (Clifford Chance): He noted that in a low‑rate world, corporates struggled to model future costs of their debt accurately. Transitions to higher rates made it harder for buyers to determine a fair valuation.
• Market Outlook: Wellings added that, while uncertainty remains, companies now have a clearer sense of the trajectory of interest rates, aiding in more realistic valuation forecasts.

A shifting business landscape

Corporate Leaders Reorient in a Transforming Landscape

As the green transition and artificial intelligence reshape the global arena, executives are compelled to rethink their strategic roadmaps. This shift is significantly influencing merger and acquisition (M&A) activity in 2025, with firms opting to divest non‑core assets or acquire complementary businesses to realign priorities.

CEO Insights on Future‑Proofing

According to Erik Hummitzsch, partner at PwC Germany and head of EMEA & German deals, many CEOs admit that their current business models may not survive the next decade. He voices that:

• Companies use M&A to shed divisions that are unlikely to thrive over the next ten years.
• Target acquisitions are pursued to adopt new management approaches and broaden the portfolio.

Geopolitical Considerations in M&A

Strategic transactions also serve as a buffer against geopolitical uncertainty. Firms sell or purchase businesses to reduce exposure in volatile markets while strengthening positions in more stable regions.

Sector‑Specific Consolidation Outlook

Pitchbook analysts predict that industries with compressed margins will experience heightened consolidation this year. Notable examples include:

• Automotive and chemical sectors, pressured by escalating operational costs and U.S. tariffs, may drive scaling efforts.
• Growing expenditure on aerospace and defence presents attractive targets for growth‑oriented M&A.

Quarter‑on‑Quarter Performance of the IT Sector

Between April and June, the IT industry was the sole European sector to register an increase in M&A value, rising by 36.6% from the previous quarter.

Is Europe still scared of scale?

EU and US Deal‑making Climate at Year’s End

Optimism across the Atlantic surged late last year, partly because many expected President Trump would relax regulatory constraints on mergers. In Europe, confidence was similarly buoyed by the Draghi report, unveiled in September with a flurry of fanfare in Brussels.

Draghi Report’s “Consolidation Call”

Former ECB chief Mario Draghi authored the study, presenting a suite of proposals aimed at boosting EU competitiveness. Skadden partner Lorenzo Corte explains:

• “The report was designed to spur consolidation in Europe, enabling firms to compete more efficiently on a global stage.”
• “We anticipated a wave of mergers soon after the report’s release, and while that momentum is emerging, the timeline is still too brief to mark a definitive trend.”

EU’s Cautious Hand on Mergers

The European Commission has a reputation for conservative oversight. Recent examples include its rejection of:

• the proposed tie‑up between Siemens Mobility and Alstom
• the Ryanair‑Aer Lingus collaboration

Other deals linger in limbo, such as the Mars‑Kellanova acquisition pending competition approval. National governments can also stall mergers, illustrated by the Spanish state’s resistance to BBVA’s bid for rival Sabadell.

Shifting EU Perspective on Scale

According to Clifford Chance’s Nigel Wellings, the EU is beginning to reinterpret its stance on scale: “It isn’t always negative to grow large.” He notes:

• “In sectors like financial services, competing on a global level requires scale, and being a European champion turns into an advantage rather than a liability.”

Implications for Defence and Strategic Industries

As geopolitical tensions rise, EU members—spurred in part by U.S. President Trump’s calls—are boosting defence budgets. Germany, for instance, has temporarily eased its debt‑brake rule to enhance military and infrastructure capabilities.

Moving through the headwinds

Current State of the M&A Landscape

Analysts point out that the merger & acquisition market this year stands in a middle ground—neither blazing hot nor entirely dormant. While tariffs and global economic uncertainty gnaw at the sector, the recent relaxation of interest rates and a growing appetite for larger transactions inject a dose of optimism.

Factors Driving the Short‑Term Outlook

• Trade Policies: The trajectory for upcoming months hinges heavily on the ongoing tariffs imposed by President Trump. The extent and duration of these duties will shape deal activity.
• Geopolitical Developments: The situation in Ukraine continues to be a key point of scrutiny for investors, potentially influencing strategic realignments.
• Regulatory Shifts: Changes in policy frameworks could open or restrict new partnership opportunities.
• Monetary Decisions: The European Central Bank and the Federal Reserve’s rate-setting will indirectly affect the cost of capital for both buyers and sellers.

Private Equity Performance

The past year has seen comparatively subdued private‑equity exits, where firms sell stakes and return proceeds to investors. The potential to clear a backlog and release locked capital could ignite greater movement in the coming cycle.

Comments from Market Experts

Wellings cautions that the current market is not saturated with quick, competitive bids. “There isn’t a flood of buyers immediately following an offer,” he says. “However, a meticulous valuation process can attract serious proposals over time.”

What Investors Should Watch

• Sequential tariff changes and their immediate impact on cost structures.
• Shifts in market sentiment related to geopolitical tensions.
• Policy revisions that can either streamline or complicate merger approvals.
• Announcement of future rate hikes or cuts by key monetary authorities.