Today, technology-focused investment bank, Union Square Advisors released its 2025 Outlook Report, “Return to Momentum,” which predicts a significant increase in strategic and financing transactions as capital markets strengthen and the mergers and acquisitions (M&A) market improves in the year ahead.
The firm foresees increasing levels of deal activity across several sectors, including artificial intelligence (AI) and data infrastructure, health technology, governance, risk and compliance (GRC) solutions and vertical software.
“Deal volumes increased modestly last year, thanks to generally improved market conditions,” said Carter McClelland, chairman and co-founder of Union Square Advisors. “However, it was the number and quality of companies that came off the sidelines in the fourth quarter to pursue a capital raise or strategic transaction in 2025 that showcased the real improvement in momentum. We are optimistic for the year ahead.”
While persistent inflation, higher interest rates and geopolitical crises continued to challenge markets in 2024, the resiliency of the U.S. economy in comparison with the rest of the world provided an unforeseen counterpoint. The back half of the year, particularly following the completion of the U.S. election cycle, saw an uptick in overall technology deal activity that has strengthened into 2025. The new U.S. administration’s anticipated focus areas, healthy capital markets and other positive tailwinds will continue to propel increased deal momentum.
“No discussion of the 2025 technology environment would be complete without touching on the enormous focus on AI, which dominates many aspects of the landscape,” Ted Smith, president and co-founder of Union Square Advisors, added. “However, AI will not be a never-ending gold mine for all investors or acquirors. As with every technology sector ever charted, new development and delivery approaches will replace their predecessors at a rapid pace.”
The report details predictions and trends in M&A, private capital markets and technology subsectors. Focuses include:
- The technology M&A market remains challenging to navigate, but it is improving – due to healthy capital markets, greater liquidity options, strategic and private equity buyers returning, and valuation gaps narrowing. The new U.S. administration’s focus on tax cuts and deregulation should drive M&A activity, particularly for ‘Big Tech.’
- Recovering capital markets will continue momentum in 2025. Pressure to deploy capital for both private credit and syndicated funds will drive increased competition between the two markets, resulting in a continuation of the current borrower-friendly environment. On the private equity side, meaningful dry powder in sponsors’ coffers plus ongoing fundraising will provide additional capital to help further break the M&A logjam.
- The secondaries market is poised for another strong year, building on the stabilization of 2024 and substantial dry powder in funds. Technology-focused funds and venture secondaries are driving increased activity, supported by robust fundraising and improving macroeconomic conditions.
- AI company valuations are soaring, but so are expectations. As the Generative AI market moves from experimentation to production and deployment, valuations for most companies in this space will become more tied to core business metrics.
- Private equity players are increasingly shifting their focus from traditional healthcare services to pharma technology. Significant capital is being redirected toward companies that are building tools that enhance clinical development, power supply chains and ensure patient compliance. Value-Based Care is also redefining healthcare delivery with digital integrations, which will make digital health innovation, particularly driven by AI, a major growth area.
Other technology subsectors covered in depth include front and back-office software, construction and industrial software, supply chain and logistics, retail and e-commerce, vertical software and GRC software. To read the full report, visit: http://www.usadvisors.com/wp-content/uploads/2025/01/USA-2025-Outlook-Report.pdf
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