By Jacob Sonenshine
Mergers and acquisitions rose this year -- and they can keep rising.
Total M&A dollars so far this year rose to $4.39 trillion, according to data from London Stock Exchange Group. That puts deal value on pace to hit $4.55 trillion for the full year, which would be 30% above last year's $3.5 trillion.
Technology, along with industrials, is driving the activity. Those are the two largest contributors in terms of deal value, combining for almost $1.4 trillion.
The increase in aggregate deal value is driven by larger deals, with the number of deals fairly stable. Just look at Netflix's $72 billion offer for Warner Bros.' streaming assets. Elsewhere, cybersecurity software provider Palo Alto Networks has agreed to buy CyberArk for $25 billion.
Looking into 2026, there's more money out there for deals. Already, two-thirds of the hundreds of corporate and private equity buyers that KPMG surveyed expect a larger deal pipeline in 2026 versus this year.
That's because the core ingredients are in place. Inflation has dropped enough for the Federal Reserve to have cut interest rates, and to signal the possibility of more cuts and other stimulus measures. That means the economy can grow, which also means higher corporate sales and profits. As long as potential buyers see growth ahead, they'll have the confidence to make offers to targets.
Also, the cost to borrow money could be lower next year versus this year. Lower borrowing costs for an acquisition and higher earnings increase the potential return -- and pump deal values higher. This bodes well for all buyers.
Private equity funds have large amounts of cash to do those transactions. "Dry powder," or cash that PE funds have available to put to work, is at around $2.2 trillion today, according to S&P Global. While it's difficult to know when exactly funds will invest all of that money, they'll deploy at least some chunk of it next year. They have a mandate from their limited partners, or investors, to put capital to work on a reasonable schedule. The takeaway is that there's a large pot of money that will support total deal value.
"Private equity dry powder has to get out to work, and that can drive more M&A activity into next year," says Matt Zimmer, global head of investment banking at William Blair.
One area to deploy that money -- whether the buyers are private equity or corporate -- is tech. Large software companies are seeking out the many smaller players to help build out their artificial intelligence offerings, create the ability to cross-sell more products to customers and create more efficient cost structures.
Cybersecurity is a prime example. Palo Alto and CrowdStrike sit at the top of the heap -- a heap that includes many smaller players, not all of which can survive on their own. Wedbush Securities analyst Dan Ives writes in a note that he expects more M&A in cybersecurity for that reason.
He also expects some deal flow in software more generally. "The best AI infrastructure acquisition candidate is Nebius [Group] in our view and this company gets acquired by a hyperscaler in 2026 with Microsoft, Alphabet, and Amazon the likely buyers."
Nebius is a $22 billion market capitalization company that trains large AI models. The company has proven it can stand on its own, as its sales grew nearly fivefold this year, but it could be so valuable to a Big Tech company that one of the heavyweights makes a compelling offer.
Elsewhere, healthcare could always see elevated deal activity. There are currently hundreds of biotechnology companies looking to solve all sorts of ailments. Many of them are worth a few billion dollars or less and could easily fit under the roof of large pharmaceutical companies, which have already been active in acquiring small biotechs.
All of this potential M&A carries one main implication for equity investors: a host of small-cap stocks could pop, given that buyout offers come at substantial premiums to current trading prices. In biotech, for example, look at the State Street SPDR S&P Biotech exchange-traded fund, which could ultimately benefit if the market believes enough of its holdings will attract offers.
Investors should just expect more deals next year.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 23, 2025 14:13 ET (19:13 GMT)
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