2025 banking and capital markets M&A outlook

2024 in review

After a slower 2023 for banking and fintech M&A, the market has shown signs of recovery with increases in deal counts, aggregate deal value, and average deal value. In contrast, the investment management sector continued its downward trend in deal count, though deal values remained relatively stable (figure 1). 

In the banking sector, 2024 saw a notable rebound in deal volume and a major increase in average deal value. Meanwhile, the fintech sector experienced a marginal increase in deal volume in 2024, staying near a five-year low, while the average deal value increased significantly, trending back toward the five-year average. Investment management, on the other hand, experienced a continued decline in the number of transactions since a high in 2021, with average deal value rising in 2023 and remaining flat in 2024.

Entering 2024, the industry faced uncertainties around interest rates, the regulatory approval process, and an upcoming presidential election. By the end of the year, these uncertainties had begun to ease, helping the market recover from post-pandemic lows and setting the stage for a more promising M&A environment in 2025. In this year’s outlook report, we’re exploring four expectations for the banking and capital markets industry for the year ahead.

Figure 1. US banking and capital markets sector M&A activity, 2023-2024

Note: Investment management is inclusive of securities transactions.
Sources: SNL Financial and S&P Global Market Intelligence as of December 31, 2024; accessed January 10, 2025.

Four trends for 2025 banking & capital markets M&A

1. A rebound in banking deals
   
   Market developments in 2024 have set the stage for more banking deals this year. Accumulated comprehensive losses for banks dropped significantly as interest rates eased, reducing potential capital shortfalls. Additionally, bank valuations rose by 30%, providing a stronger position to address interest rate-driven capital issues and creating a sense of urgency for dealmakers.
   
   Normalization around deposits and liquidity has also improved post-2023 crisis, with a narrowing spread between deposit costs and federal funds. Banks have shifted to certificates of deposit, resetting at better rates, and are well-reserved against credit losses, particularly in commercial real estate. These factors suggest potential consolidation in the regional banking sector in the coming year.
   
   
2. Pockets of divestiture among regionals
   
   As regional banks consolidate, some may need to divest assets to meet regulatory requirements or raise capital. This could create a more active M&A environment, attracting more buyers.
   
   Additional capital may be directed towards digital modernization to address concerns about legacy infrastructure. Investing in advanced digital capabilities can drive growth and provide a competitive edge. According to Deloitte research, over 75% of banks plan to increase investments in data management and cloud consumption to advance their generative AI strategy. Additionally, a separate Deloitte survey shows that 77% of financial services respondents believe they are gaining value from their AI investments. Shedding non-core assets and operations could fund these digital upgrades, especially if the Federal Reserve slows interest rate cuts.
   
   
3. Continued push into alternative asset classes
   
   With the new administration adopting a more permissive regulatory stance on digital and alternative asset classes, related M&A opportunities are likely to remain a focus in the industry.
   
   Activity could unfold in three ways:
   
   
   • Alternatives may acquire other alternatives, such as private equity entering private credit, real estate, or infrastructure, to expand capabilities and potentially become a one-stop shop for alternative asset investors.
   • Traditional and alternative players might form tie-ups, with traditional firms providing distribution strength to alternative products. These deals may favor joint ventures and strategic partnerships over traditional M&A as wealth managers seek innovative approaches.
   • Ongoing consolidation in private credit is expected, with lenders expanding origination capabilities to attract more investor capital.
   
   
4. More interest in fintechs
   
   Private equity has been a key buyer in the payments and fintech sectors. Despite major deals in 2024, private equity firms still have substantial dry powder. As they re-enter the market, this could attract other strategic buyers, and banks aiming to expand in the payment space may seize this opportunity to enhance services, enter new markets, and gain a competitive edge. Additionally, cross-border activity is expected, with international buyers targeting US fintech organizations and vice versa.

Catching the wave

Organizations use the M&A market to reorganize, improve efficiency, cut costs, boost working capital, and drive restructuring initiatives. This strategic focus helps optimize commercial, product, and operational capabilities, ensuring long-term growth and sustainability. Now might be the perfect time to revisit and stress-test the M&A playbook.

This means clarifying your strategy, whether it's capturing sector leadership or transforming your business model, and understanding your industry advantage. Getting your team prepared to act is also key. In a year with many moving parts, those who prioritize readiness and can move quickly on the right opportunities will have the upper hand.

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