Following a turbulent start to Q2, there are promising indications of recovery in M&A activity, particularly in sectors better insulated from international trade uncertainties. Although some headline risks linger as U.S. tariff policy continues to evolve, buyers and sellers are beginning to distinguish signal from noise.
Markets Are Starting to Settle Down as Panic Gives Way to Rational Analysis
April was the most challenging month for deal conclusions in 20 years, with contract announcements dropping to financial crisis levels amid a major surge in volatility.1 But M&A has proved itself more resilient than many expected. We are already seeing middle-market deal flow beginning to pick up as decision-makers draw breath and sort through the implications of recent trade policy shifts.
The market consensus is that U.S. policy is primarily focused on rebalancing trade with China. Both rhetoric and substantive policy toward other trade partners have been overall less aggressive. A framework agreement for an Economic Prosperity Deal with the United Kingdom, published on May 8, furnished some evidence for the view that the administration is open to rapprochement rather than rupture when it comes to traditional allies.2
The recent U.S.–China deal to suspend most of their punitive tariffs marks a notable de-escalation. But with the measures set to expire after 90 days, and key tensions including fentanyl still unresolved, investors are likely to treat this as a pause, not a pivot. Companies highly exposed to U.S.–China goods traffic remain unattractive propositions. Industrial and consumer product businesses that rely heavily on Chinese imports are still hard to transact, for example, and deal friction may outlast what could be a temporary thaw.
Sectors less exposed to Chinese imports or with strong domestic supply chains could stabilize faster and remain in play from a dealmaking perspective.
Sentiment Across a Range of Sectors is More Bullish Than the Media Narrative Might Suggest
Take technology, where earnings appear strong. The overall outlook will depend on the scale of Q2 advertising pullback, which would test mid-sized firms lacking the scale to absorb shocks. Businesses where ad revenue is not mission critical, by contrast, remain highly attractive in most scenarios.
In aerospace and defense, the positive momentum coming out of 2024 could be blunted if trade discussions with the EU fail to reach a satisfactory resolution.3 But the geopolitical fundamentals continue to incentivize European rearmament, and some essential materiel is only available from U.S. suppliers. We expect these hard realities to prevail despite the potential for some product lines to face retaliatory duties.4
The impact on food and agriculture has been mixed. Domestically focused businesses are well insulated from trade disruptions and can expect continued buyer interest. Where imports are a factor in the supply chain, they tend to flow from countries like Mexico where trade relationships are more stable (at least in relative terms). As in any industry segment, interested parties will need to identify inputs with tariff risk and work through the likely cost pressures and pass-through prospects.
Consumer services businesses without direct tariff exposure remain transactable despite concerns about the potential for a general slowdown in consumer demand. Travel and hospitality targets benefit from a widely held sentiment that leisure spending will remain robust, especially given the potential relief on offer to lower-income consumers through U.S. tax proposals. Inbound tourism appears stable, with reports of significant drops in passenger arrivals wide of the mark, while a weaker dollar is making the U.S. a more affordable destination for international visitors.5
There are also suggestions that the broader outlook is more positive than expected. Recent research from law firm Taylor Wessing has found that almost three-quarters (74%) of dealmakers are positive about M&A prospects for the coming year, rising to over 90% for the outlook for both the U.S. and U.K. markets.6 The research has also highlighted hotspots of activity, with technology, media and communications expected to lead cross-border M&A activity through to 2030, followed by the energy and infrastructure and life sciences sectors.
Implications for the Transaction Pipeline in 2025
As under the recent bout of global inflation, firms with pricing power and strong earnings visibility are best placed to weather difficult conditions and attract buyer interest as the year progresses. Sellers can expect a predictability premium: an ability to demonstrate stable or defensible earnings will stand out in a volatile marketplace.
Insofar as uncertainty breeds opportunity for buyers, private equity is better placed to take advantage. Properly advised sellers are unlikely to rush into panicked reappraisals of their company’s underlying prospects, but some may be more open to adjusted valuations or deal structures. Private buyers willing to work with the more exposed sectors can absorb the associated risk more discreetly than public companies.
Dealmakers Should Maintain a State of Readiness to Act When the Window Opens
Our message is that sellers should continue preparations to go to market. Given the backlog of pent-up supply, being at the front of the line will matter when conditions ease – especially as buyer attention is finite. As sentiment improves or sector-specific “all clears” emerge, businesses primed to hit the opportunity window will be those that gain first-mover advantage.
Sources:
1 https://www.reuters.com/business/ma-deal-signing-hits-20-year-low-after-trumps-liberation-day-2025-05-06/
2 https://www.whitehouse.gov/briefings-statements/2025/05/general-terms-for-the-united-states-of-america-and-the-united-kingdom-of-great-britain-and-northern-ireland-economic-prosperity-deal/
3 https://www.kroll.com/en/insights/publications/m-and-a/aerospace-defense-government-services-2024-year-review-2025-outlook
4 https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1149
5 https://www.nytimes.com/interactive/2025/04/30/world/us-travel-decline.html?rsrc=flt&unlocked_article_code=1.F08.0Ebi.MGVbRqFR5yUe&smid=url-share
6 https://www.taylorwessing.com/en/insights-and-events/news/media-centre/press-releases/2025/05/dealonomics
