AGEFI Luxembourg - septembre 2025

Septembre 2025 9 AGEFI Luxembourg Economie ByOlivierLACOURROYREd'AUTRICHE, Partner, DealAdvisory, KPMGLuxembourg E uropean M&A entered 2025 with cautious optimism. Following the modest rebound in 2024, expectations emerged that improving financing conditions, steady sector per- formance, and a gradual resumption of deferred transactions would sup- port broader momentum. That optimism proved short- lived. By the end of the first quarter of 2025, European deal volumesdeclinedbymorethan 25% compared to the average of theprevious twoquarters,withaggre- gatevalues following the same trend (1) . InApril, new U.S.tariffannouncementsaddedtotheunease,push- ingglobal deal signings to their lowestmonthly level in twodecades -beloweven the troughs seenduring thepandemicandtheglobalfinancialcrisis (2) .Europe felttheimmediateeffects,withweakeningcross-bor- der sentiment driving further declines in both deal volumesandvalues.However,emergingdatashows that while Q1 saw a sharp contraction, the broader first half of 2025 reveals a more nuanced picture. Across the first half, global M&A volumes fell by roughly 9% year-over-year, yet values rose by 15%, suggesting resilience among larger deals and megadeals. InEurope specifically, the EMEAregion sawa6%dropinbothvolumesandvalues-lessdra- matic thanQ1but still indicativeof subduedactivity. “What began as a tentative recovery shifted to a broader pause, asmacroeconomic and geopolitical factors regained prominence.” Private equity firms face this environment with unprecedentedcapitalreserves,butmostremainpru- dent, awaiting greater clarity before pursuing sizable deployments (3) . Valuation friction, tighter credit con- ditions, and persistent bid-ask gaps are weighing on activity.Ratherthanexiting,manymarketparticipants areoptingtowait:transactionsarebeingdeferred,not abandoned, as investors await improved clarity (4) . Periods of volatility often give way to recalibration. As seen in prior cycles, the current pause may offer timeforinstitutionalinvestorstorefinestrategies,posi- tionselectively,andpreparetomovewhenconditions improve. In Europe, the combination of stable legal frameworks, consistent demand indefensive sectors, andabacklogofshelvedprocessessuggeststheingre- dients for a secondhalf rebound remainplausible (5) . Thisarticleexaminesthe dynamicsbehindthecurrent slowdown and why preparation during the interim mayenabledecisiveexecutionwhenconditionsalign. ADealmakingPause: Geopolitical Shocks andRegionalNuances “The announcement of newU.S. tariffs froze cross-border dealmaking, forcing European investors into a wait-and- see stance.” On 2 April, the U.S. announce, among other meas- ures, tariffs of up to 20%on a broad set of European imports. While implementation was delayed for 90 days, the announcement alone disrupted market confidence and introduced further uncertainty into ongoing and prospective transactions, particularly those with transatlantic exposure (6) . The evolving nature of EU–U.S. trade discussions - alongside the broader geopolitical posture of the U.S. toward China and other regions - has led to renewed cau- tion. Investors have paused launches and are revis- iting pipeline assumptions. Beyond short-term dis- ruption, the outcome of these negotiations could recalibrate competitive dynamics, affecting indus- tries unevenly and changing how deals are struc- tured across sectors and jurisdictions (7) . While the immediate disruption stems from conjunctural geopolitical developments (such as U.S. tariffs and armed conflicts), the European M&A market also presents deeper structural constraints. Europe’s frag- mentedcapitalmarkets (8) ,regulatoryhurdlesindigital sectors (9) , and restrictive competition rules (10) continue toweighonconsolidation.Addressingthesethrough reforms could enhance investor confidence and sup- port amore robustM&Arecovery over time. At the same time, some areas of resilience and struc- tural pressure points are emerging. European banks arelobbyingtodismantlecross-borderregulatoryhur- dles, highlighting €225 bn in capital and €250 bn in liquidity trapped by national restrictions and autho- rizationprocessesaveraging285days.Thisregulatory friction is delaying large-scale consolidation, particu- larly in banking and financial services, even as pres- sure to create pan-European champions grows. Meanwhile, a few high-profile transactions under- score selective momentum despite the pause. CapVest’s €10 bn acquisition of Stada - Europe’s largest healthcare buyout in years - illustrates that megadeals remain viable when strategic logic and funding certainty align. PrivateequityexitsinEuropeareoutpacingother regions,with515exitsrecordedinH12025-sur- passing North America - and U.S. investors accountingfornearly19%ofEuropeantransac- tions.Thisindicatesthatwhilecross-bordersen- timent is subdued at the macro level, selective transatlantic engagement persists. A rebound is anticipated once EU-U.S. negotiations bring greater clarity, though its shapeandsectoral reachwillhingeonthelevelofcertainty the outcome provides. Over the longer term, structural reforms - such as completing the CapitalMarketsUnion,streamlin- ingdigitalregulation,andadvanc- ing cross-border fiscal coordina- tion - will be critical not only to move beyond current disrup- tions, but to position Europe as a competitiveand integratedplayer in the global M&A landscape. Why easing rates are not yet unlockingM&A “Despite central bank cuts, long-term financing remains relatively expensive—limiting execution capacity for large, debt-driven transactions.” Whileheadlineshavefocusedontariffsandgeopolit- icaltensions,aquieterbutequallypowerfulheadwind is shaping the current pause inM&A: financing con- ditions are not easing where it matters most. While monetary policy has turned more accommodative since2024,theeffecthasbeenconcentratedattheshort end of the curve. Long-term funding - vital for large deals-remainscostlyduetolingeringinflationexpec- tations and elevated sovereign debt levels. This dis- connect is particularly relevant for leveraged transac- tions and infrastructure acquisitions, which depend onmulti-year funding structures (11) . Compounding this issue, many corporates and sponsors are nearing refinancing cycles for debt issuedduring the2020–2021ultra-low-ratewindow. The resulting repricing pressures are constraining acquisition capacity and prompting a more conser- vative stance fromlenders (12)(13) . There are early signs of moderation in inflation and deficit trajectories, which could begin to relieve pressure on long-term rates in the coming quarters (14)(15) . If coupled with more geopolitical stability, this would support a more fluid financing environment. In the interim, dealmakers areproving that tight financingdoesnot have to stall activity. Earn-outs, hybrid capital ven- dorfinancing,deferredpayments,andjointventures and minority stakes are being used to ease upfront funding pressure and bridge valuation gaps (16)(17) . These mechanisms allow transactions to advance despite current constraints. If financing conditions ease, this adaptability could helpmaintainmomen- tumand support amore orderly recovery. Private capital dynamics: Drypowder, but cautious deployment “Private equity sits on record capital, but a lack of pricing visibility and regulatory clarity is keeping deployment highly selective.” Capitalavailabilityisnottheconstraint.Privateequity entered 2025 with substantial dry powder, the result ofstrongpriorfundraisingandmeasuredinvestment pacing.Yetdeploymenthasbeentemperedbyuncer- tainty.Investorsremainengaged,butexecutionislim- ited by valuation gaps, shifting regulatory expecta- tions, and a more demanding debt market (18) . Sellers remainanchored topre-2023multiples,while buyers are pricing inmore conservative scenarios.With IPO activitymuted and secondaries facingmore scrutiny fromLPs,sponsorsareshiftingfocustowardbolt-ons, sector consolidation, and public-to-private opportu- nitiesinmaturemarkets.Theemphasisislessonscale and more on resilience (19) . As the environment stabi- lizes, capital will be ready. It is clarity - and the con- viction it enables - thatwill determine timing. Emerging opportunities amidvolatility “While headline volumes are down, disciplined investors are quietly repositioning—targeting resilient sectors and preparing for a shift inmomentum.” Even in a subdued environment, activity continues below the surface. Sponsors are revisiting theses, pressure-testingassumptions, and identifyingassets alignedwith secular demandand stable cashflows. Rather than chasing volume, the focus has shifted to resilience and long-term value creation. Opportunities are being shaped - not by timing, but by fundamentals (20) . This is particularly evident in sectors where long-termdemand visibility, regula- tory alignment, and resilient cash flows continue to attract interest. Infrastructure remains a priority, supportedbypublic investment plans, energy tran- sition and inflation-linked revenuemodels. In healthcare, demographic trends and the acceler- ation of digital (AI) solutions are sustaining deal momentum. Tech investors are focusing on targets withproprietarydata andappliedAI capabilities (21) . ESG has moved from storytelling to screening. Investors are no longer treating sustainability as a bonus but as a prerequisite.With regulations such as the CSRD coming into force, ESG criteria are now embedded in deal selection, influencing both valua- tion and due diligence scope. Targets lacking robust ESG disclosures or transition plans are increasingly excludedfromshortlists,makingcomplianceagating issue rather than a differentiator (22) . In financial services, firms approaching the end of their holding cycles are preparing for potential exits inthesecondhalfof2025.Ameasuredstreamofmid- cap divestments in banking, insurance, and asset managementmay follow- addingwelcome supply- sidedepthtothemarket (23) .Europe’sestablishedlegal, macroeconomic, and institutional frameworks con- tinuetosupportinvestorconfidence,evenamidglob- al uncertainty, which may enhance its appeal as a safe harbor for international capital. If long-term financing conditions improve and geopolitical risks begin to recede, the pieces for a second half rebound may fall into place faster than current sentiment implies. Nonetheless, the path ahead remains con- tingent (24) .Asustainable recoverywill requiregreater clarity on trade dynamics, credible macroeconomic signals, and policy coherence across major economies.Investorsentimentremainscautious,and structural headwinds - ranging fromtrade fragmen- tation to the complexity of the energy transition and upcomingelections-suggestuncertaintymaypersist beyond current expectations. However, this pause is not idle time; it is the prelude to repositioning (25) . Preparing for the rebound: Strategic readiness for buyers and sellers “Those who act during the pause—refining theses, preparing due diligence, and planning execution—will lead when activity resumes.” The current slowdown is not structural. The funda- mentals - capital availability, consolidation logic, and investormandate - are intact. Timing has shifted, but interest endures. For investors, now is the time to sharpen sector views, prioritize pipeline targets, and launch early-stage due diligence tomaintain option- ality. Light-touch assessments - focused on business modelresilience,workingcapitaldynamics,andinfla- tionpass-through - canprovide the foundation to act decisively andmove first andwith conviction, secur- ing an edge in accelerated and competitive processes whenthereboundmaterializes.Forsellers,thecurrent window offers a unique chance to enhance transac- tionreadiness.Launchingrobustvendorfinancialdue diligence at this stage can reduce execution risk,min- imizevaluationfriction,andensurerapidresponsive- ness to inbound interest. In parallel, for businesses expectedtobecarvedout,earlypreparationforoper- ational separation can further support a smooth exe- cution.Definingstandalone cost structures, assessing stranded cost exposure, and planning TSA frame- works across key functions (finance, IT, HR, legal) is best done before the pressures of a live process. Anticipatingtheserequirementsinadvancereinforces buyer confidence and avoids last-minute complica- tions that can erode value or delay closing. AsM&Aactivity begins to regainmomentum, those best prepared will be best positioned to lead. In today’s volatile environment, dealmakers are lever- aging flexible structures - such as earn-outs, deferred payments, hybrid capital, and minority stakes - to bridge valuation gaps and adapt to shifting market dynamics. At the same time, AI is transforming the transaction landscape, accelerating everything from target screening to riskmodelling, and opening new frontiers in sectors like SaaS and cybersecurity. The marginal cost of early preparation is low, but the potentialstrategicpayoffishigh.Inarapidlyevolving market, the groundwork laid today may be the key to tomorrow’s competitive edge. This article was written in collaboration with Alberto Chocano – Deal Advisory Director and Raul Alvarez – Deal Advisory Assistant Manager,atKPMGLuxembourg. 1) Source: https://lc.cx/rWrTex 2) Source: https://lc.cx/_EsjbX 3) Source: https://lc.cx/Qf15SY 4) Source: https://lc.cx/i_-0AM 5) Source: https://lc.cx/huozeh 6) Source: https://lc.cx/huozeh 7) Source: https://lc.cx/huozeh 8) Source: https://lc.cx/8ehl3C 9) Source: https://lc.cx/UNRE0w 10) Source: https://urls.fr/OaVeW2 11) Source: https://urls.fr/f2ZPLh 12) Source: https://urls.fr/SG6cnn 13) Source: https://lc.cx/_vqsh8 14) Source: https://lc.cx/Lb2moS 15) Source: https://urls.fr/XFVnfX 16) Source: https://m-url.eu/r-6ekw 17) Source: https://m-url.eu/r-6ekx 18) Source: https://m-url.eu/r-6eky 19) Source: https://m-url.eu/r-6ekz 20) Source: https://m-url.eu/r-6el0 21) Source: https://m-url.eu/r-6el1 22) Source: https://m-url.eu/r-6el2 23) Source: https://m-url.eu/r-6eky 24) Source: https://m-url.eu/r-6el3 25) Source: https://m-url.eu/r-6el0 European M&A in 2025: Navigating a Strategic Pause