The technology sector is often seen as a barometer for economic health, but it doesn’t necessarily require a booming market to facilitate mergers and acquisitions (M&A). Even in challenging times, deals can still be struck. However, the question remains: can M&A truly flourish amidst market uncertainty?
In 2022, the venture capital landscape faced significant challenges, with fundraising and exit opportunities dwindling. Investors have been eagerly anticipating a resurgence in M&A and IPO activities. As we approach 2025, there were signs of optimism, suggesting that the market might be on the verge of recovery.
Valuations for late-stage startups began to show signs of improvement, and several high-profile transactions hinted at a potential rebound. Additionally, the previous administration had fostered a more favorable environment for M&A compared to the current administration, which had previously blocked several significant deals due to antitrust concerns.
As 2025 commenced, the M&A landscape appeared to be gaining momentum. Data from PitchBook indicated that 205 startup acquisitions occurred in the first quarter alone, many of which were noteworthy.
In March, a significant acquisition took place when a major player agreed to acquire a prominent AI development platform for $1.7 billion. Shortly after, another tech giant announced plans to purchase an AI firm for $2.9 billion, followed by a major cybersecurity acquisition valued at $32 billion.
Other notable transactions included the acquisition of a proptech company for $1 billion and another startup being sold for $2.6 billion, showcasing a vibrant start to the year.
However, the landscape shifted dramatically in April.
On April 2, a significant announcement regarding sweeping tariffs against major trading partners sent shockwaves through the tech industry. As a result, tech stocks experienced a sharp decline, casting doubt on the earlier optimism.
A week later, a temporary pause on these tariffs was announced, but the market remained in a state of uncertainty.
“As we entered 2025, there was a palpable sense of excitement about potential growth,” noted a managing director at a leading financial institution. “Unfortunately, that optimism has not materialized, and the outlook for the remainder of the year appears quite subdued.”
Several factors contribute to the slowdown in M&A activity during periods of market volatility.
Firstly, many of the most active acquirers, particularly large public tech companies, are directly impacted by tariff uncertainties. Their stock valuations have suffered, and potential disruptions to their supply chains could further complicate matters.
“Public companies are facing significant challenges with their stock valuations,” explained a venture capital research director. “Even if they have the cash reserves, the uncertainty in the market makes them hesitant to pursue acquisitions, as they fear spooking investors.”
Another obstacle is the issue of valuation. The past few years have seen a cloud of uncertainty surrounding startup valuations, with many late-stage companies no longer commanding the inflated prices seen in 2021. However, determining their current worth remains elusive.
“There’s a lot of indecision leading to heightened uncertainty,” remarked a capital advisory leader. “Businesses are reluctant to make moves when waiting a few days could lead to a different valuation.”
Despite the slowdown, some transactions are still expected to occur.
A partner at a law firm specializing in tech M&A noted that companies that had previously expressed interest in selling are likely pausing their efforts. This marks a stark contrast to earlier predictions of an uptick in M&A activity.
“The landscape has changed dramatically in just a few weeks,” he stated. “No one wants to make a significant purchase if they fear that the value could drop significantly in a short time.”
However, not all M&A activity is driven by favorable market conditions. Startups struggling to secure their next funding round may still need to pursue acquisitions, albeit at lower valuations.
“These companies have likely been holding out for a market recovery, but if that doesn’t happen, they may have to accept lower offers or consider acquisitions at discounted rates,” he added. “This could lead to increased deal volume in that segment.”
Well-funded private companies, particularly in the AI sector, are also expected to pursue acquisitions of smaller firms. For instance, a prominent AI company recently raised a substantial funding round and is rumored to be in talks to acquire a coding startup for $3 billion.
As the second quarter progresses, concerns arise that the events of early April may have already stifled M&A activity for the remainder of the year. If tariffs are reinstated or new trade agreements are established, the situation may not improve significantly.
Stability in the market may not be achieved until the summer, a traditionally slow period for M&A activity. Following that, the fall season and year-end holidays could further dampen momentum.
This leaves a narrow window for substantial M&A deals to materialize.
“The prospects for a stable 2025 appear bleak at this point due to the recent changes,” the venture capital research director concluded. “The rapid shifts in the news have created a climate of uncertainty that is difficult to navigate.”