Market Recovery and Growth

• Strong Rebound Expected: Following a subdued 2023–2024, tech M&A is set for a rebound in 2025, with 87% of dealmakers anticipating increased transaction volumes.
• Larger Deals on the Horizon: A shift toward transformative, high-value transactions exceeding $10 billion is expected, particularly among private equity (PE) firms.
• Private Equity Leading Market Growth: PE firms are significantly more bullish than corporates, leveraging available capital to drive strategic acquisitions.

AI and Digital Transformation as M&A Drivers

• AI and Generative AI as Market Disruptors: AI adoption is set to increase significantly, with a focus on AI-powered analytics, deal automation, and cybersecurity, which, in turn, will shape acquisition strategies.
• Digital Transformation Fuels Demand: Companies are prioritizing acquisitions that enhance tech capabilities, especially in data analytics, AI, and automation.

Shifting Deal Structures

Earnouts

• One-third of 2023 deals included an earnout, representing more than a 50% increase year over year (nearly one-fifth of deals in the previous three years included an earnout).
• The amount of contingent consideration tied to earnouts also increased slightly.

Deal Escrows

• The use of special escrows, in addition to the general indemnification escrow, has increased. Nearly one-half of deals with RWI now include an escrow for purposes other than general indemnification or the PPA.
• The median size of indemnification escrows remained at 10% of the transaction value for deals without RWI identified (0.5% for deals with RWI).

Indemnification

• The number of deals in which the seller’s general representations and warranties did not survive (i.e., walk-away deals) decreased in 2023.
• The median survival period for sellers’ representations and warranties returned to 12 months, while the average remained unchanged.

Regional Insights & Regulatory Challenges

• Europe’s M&A Market Remains Cautious: Regulatory scrutiny in the UK and EU is intensifying, targeting “killer acquisitions” and tightening merger control.
• China’s Slow Recovery & Foreign Investment Barriers: While China is experiencing a mild tech M&A rebound, geopolitical tensions and regulatory hurdles persist.
• North America Shows Optimism Amid Policy Shifts: A pro-business stance in the U.S. (Trump administration) is expected to encourage dealmaking, though inflation and economic uncertainty remain key concerns.

Uncertainties & Risks – Wolfcorner’s Perspective

• Trade Wars & Policy Volatility: The risk of trade wars is higher than in 2024, as President Trump’s unpredictable policy shifts may lead to sudden changes in trade tariffs. Counteractions from other global powers could escalate tensions, affecting cross-border M&A activity.
• Tech M&A Growth in the USA: Potential trade tariffs may push international companies to acquire U.S.-based firms rather than invest abroad. This trend could drive higher valuations in the U.S. tech sector due to increased demand.
• Geopolitical Instability: Decision-makers remain cautious as geopolitical volatility increases. Rapid policy changes and regulatory uncertainty may delay or disrupt planned M&A deals.

Cybersecurity and ESG in M&A

• Cybersecurity Risks Are a Growing Concern: 82% of dealmakers cite cybersecurity as a critical factor in M&A due diligence.
• ESG Compliance Becomes a Dealbreaker: 84% of respondents anticipate increased ESG regulatory scrutiny, making sustainability a key consideration in transactions.

Conclusion

Tech M&A in 2025 is expected to see a steady rebound, driven by AI, digital transformation, and private equity investments. Larger, high-value deals are becoming more common as companies seek strategic acquisitions to strengthen their market positions.

At the same time, global uncertainties could shape deal flows in unexpected ways. In the U.S., policy shifts may encourage domestic acquisitions. Europe faces stricter regulatory scrutiny, and China’s recovery remains cautious amid investment restrictions. Evolving deal structures, cybersecurity concerns, and ESG compliance are becoming central to due diligence.

Despite these complexities, the overall outlook for tech M&A in 2025 remains positive, with significant opportunities for well-planned and strategic acquisitions.

The key to success in 2025 Tech M&A? Agility, strategic risk assessment, a deep understanding of regional market dynamics, and a focus on long-term value creation.

Jarmo Kuusivuori

Sources:

Wolfcorner

SS&C Intralinks Global M&A Dealmakers Sentiment Report

SRS Acquiom 2024 M&A Deal Terms Study

Tech M&A Outlook: Investment and regulatory trends Sean Murphy