Europe’s M&A market is alive and kicking - in spite of the odds

Uncertainty has become a defining feature of the M&A landscape in recent years. After a stellar post-pandemic rebound and a catastrophic 2023, the end of 2024 marked a period of hope for company executives  — before US trade policy came to rain on the parade.

“Despite persistent macroeconomic headwinds, including elevated recession risk, geopolitical instability, and renewed trade friction, global M&A remained remarkably resilient in the first half of 2025,” said Garrett Hinds, PE senior research analyst at Pitchbook.

“Total deal value reached $2.0 trillion across 24,793 transactions in the first half of 2025, representing year-on-year increases of 13.6% and 16.2%, respectively,” he said in Pitchbook’s latest M&A report.

While the global landscape is looking surprisingly optimistic, so is the dealmaking environment in Europe. In fact, if companies can repeat the number of deals completed in the first half of 2025, M&A count in Europe is pacing for its best year in over a decade.

The valuation gap

Last year represented a period of recovery for dealmaking after a period of rising interest rates and economic uncertainty in 2023. Despite this, negotiations were still stalled by valuation gaps, as buyers and sellers failed to agree on the worth of firms.

“When a company has acquired a business, for example, in the M&A boom of 2020 and then expects to sell that company in 2025, following a rise in interest rates, inflation, and tariffs, there's going to be an expectation by the seller that the value of the business has increased or that they’re going to get their money back,” Lorenzo Corte, global co-head of Skadden's transactional practice, told Euronews.

He continued: “Oftentimes that expectation doesn't meet with the expectation of buyers…which results in either the sale not being made or the sale being made with mechanisms that are designed to bridge the value gap, which get quite complicated.”

One way to do this is by using an “earn-out” mechanism. This allows the buyer to pay part of the purchase price at a later date, and the amount owed will depend on how well the business performs. 

While the global economic environment remains volatile, easing inflation and interest rates now mean that valuation gaps are less of a stumbling block.

“What you saw when we moved from a low-rate environment to a higher-interest-rate environment was that people simply couldn't do their modelling,” said Nigel Wellings, partner and co-head of corporate in Europe at Clifford Chance.

“So they couldn't work out what the cost of their debt was going to be over three to five years. And if you can't do that, it's very difficult for a buyer to come up with a valuation.”

He added that although uncertainty persists, companies have “more of a sense of the direction of travel of rates”.

A shifting business landscape

Company leaders are being forced to reassess their priorities in a changing world, notably as themes such as the green transition and artificial intelligence take centre stage.

This is one factor driving M&A in 2025, with firms looking to sell non-core units or acquire others to re-position their focus.

“Many of the CEOs that we interview every year as part of the Global CEO Survey, they tell us that they don't think their business model is actually fit for purpose if you look at the next 10 years,” said Erik Hummitzsch, partner and EMEA & German deals leader at PwC Germany.

He told Euronews: “Therefore M&A is used to sell parts of the business that may not make it over the next decade. Or firms may buy other companies to take a different approach when managing their portfolio.”

Firms are also selling or acquiring businesses to adapt to geopolitical shifts, limiting their exposure to challenging markets while increasing their presence in others.

In particular, Pitchbook analysts expect sectors with tight margins to see increasing consolidation this year. For example, the automobile and chemical industries could be forced to scale because of cost pressures, largely linked to tariffs from the US government. Increased spending on aerospace and defence also makes businesses within these sectors attractive targets for growth-focused M&A.

In the April to June period, the IT sector was the only area in Europe to record a quarter-on-quarter increase in M&A value, rising by 36.6%. 

Is Europe still scared of scale?

At the end of last year, optimism in the US was partially driven by a belief that President Trump would loosen regulatory controls on dealmaking.

Over in Europe, Skadden’s Lorenzo Corte said that similar enthusiasm was sparked by the Draghi report, published in September. The report, which arrived with much fanfare in Brussels, included a series of proposals on EU competitiveness, authored by former ECB president Mario Draghi.

“The Draghi report was a call to encourage consolidation in Europe in order for European companies to compete with their global competitors more efficiently,” said Corte.

“So I think the players in the market were expecting a significant amount of consolidation to kickstart in Europe. I think there's been some, and that it will continue, although it’s still too short a period to evaluate an actual trend.”

When it comes to merger approvals, the EU is often criticised for being overly cautious. The Commission has, for example, blocked deals between rail giants Siemens Mobility and Alstom, or between airlines Ryanair and Aer Lingus, over concerns they would harm market competition. A deal between Mars and Kellanova is currently stalled while it awaits a green light from competition officials.

And it’s not just the Commission that is holding up deals. National governments can also complicate mergers, as seen with the Spanish government’s hostility to BBVA’s takeover of rival bank Sabadell.

According to Clifford Chance’s Nigel Wellings, there is now a realisation from the EU that “it can't just react negatively to scale” and that “big doesn’t always mean bad”.

He argued: “If you're in a sector like financial services, where you're competing globally, then scale and being a European champion is a positive.”

The EU’s ability to foster industrial champions is also particularly relevant when it comes to defence. In response to geopolitical tensions and entreaties from US president Donald Trump, member states have been ramping up military spending, with Germany notably loosening its debt-brake rule to boost defence and infrastructure capabilities.

Moving through the headwinds

Analysts suggest that this year’s M&A market is neither red hot nor entirely sluggish, with tariffs and economic risks counteracted by easing interest rates and a greater appetite for scale. 

The trajectory for the months ahead depends largely on President Trump’s tariffs and the economic consequences. Investors will also be watching developments in Ukraine, regulatory shifts, and rate decisions from the ECB and the Federal Reserve.

Private equity exits, when PE investors sell a firm and return money to investors, have also been relatively weak over the past year. If PE firms can work through the backlog and free up capital, this will likely create more momentum in the year ahead.

“We're not at a heavy sell-side process where you put something on the market and three, four bidders come forward immediately,” said Wellings. “But if you do your process properly and work hard on valuation, you're seeing deals come through.”