Deloitte: US Banking M&A Set for Resurgence in 2025
Mergers and acquisitions in the US banking sector are poised for a significant revival in 2025 after showing strong recovery signals throughout 2024, according to Deloitte's latest "2025 US Banking and Capital Markets M&A Outlook".
The consultancy's annual report, subtitled "Rising tide", points to a shift in market sentiment following a cautious approach in 2023, with banking transactions increasing 28% year-on-year to 126 deals in 2024. More strikingly, the aggregate value of these transactions surged to US$51.6bn from just US$4.2bn in 2023.
"By year’s end, these uncertainties had begun to ease, bringing the pendulum back from post-pandemic lows and setting the stage for a more promising M&A environment in 2025," the report states, highlighting how uncertainty around interest rates, regulatory approvals and the presidential election had suppressed activity early in 2024 before easing later in the year.
The banking sector's revival was exemplified by Capital One Financial Corporation's US$35.3bn acquisition of Discover Financial Services, the credit card issuer and payment network operator, which helped push average banking deal values to US$957m, up from US$143m the previous year.
This return to pre-pandemic patterns occurred alongside similar movements in the fintech sector, where transaction numbers rose 15% to 101 deals and overall value climbed 62% to US$13.7bn. The average fintech transaction value increased to US$442m, moving closer to historical norms after a period of subdued activity.
Only the investment management segment bucked the positive trend, with transaction numbers falling 10% to 341 deals, though average values remained relatively stable at approximately US$1.25bn.
Regulatory shift creates favourable conditions
The anticipated regulatory shift under the new administration appears to be creating more favourable conditions for deal-making. Deloitte's outlook notes the potential for more permissive antitrust policies and the suspension of proposed Basel III Endgame rules – regulatory changes that would have imposed stricter capital requirements on larger banking institutions.
At the same time, market conditions have become more conducive to transactions.
Accumulated other comprehensive losses – unrealised losses in investment portfolios that impact capital ratios without affecting earnings – have decreased significantly as interest rates began to ease, reducing a major constraint on deal-making capabilities.
Bank valuations rose by approximately 30% during 2024, providing additional leverage for potential acquisitions, creating additional currency for potential acquisitions. Meanwhile, the banking sector has experienced normalisation around deposits and liquidity following the concerns that emerged during the 2023 banking crisis.
"The spread between the cost of deposits and federal funds has continued to narrow," notes the report, explaining how banks have increased their reliance on certificates of deposit over other wholesale funding options, with the maturity of their CD portfolios "poised to reset at much better rates".
Regional banks eye divestitures to fund digital transformation
For regional banks, 2025 may bring increased consideration of divestiture strategies, both to meet regulatory requirements and to fund technological transformation.
Deloitte's research indicates that more than 75% of banks plan to increase investments in data management and cloud computing to advance their enterprise-wide artificial intelligence capabilities.
This push toward digital modernisation comes as institutions confront the limitations of ageing technology infrastructure. For many banks, selling non-core assets presents a practical opportunity to finance these essential upgrades while simultaneously addressing regulatory concerns.
Private equity and alternative assets gain momentum
The alternative asset management space is expected to continue evolving through three primary transaction patterns: alternative investment firms acquiring complementary businesses, traditional asset managers forming partnerships with alternative specialists, and ongoing consolidation among private credit lenders competing for investor capital.
Private equity firms, sitting on substantial reserves of uninvested capital – commonly known in the industry as "dry powder" – have shown renewed interest in payment processors and financial technology companies.
Notable 2024 transactions included a payment processor that went private in a deal exceeding US$5bn in October, and the acquisition of a billing platform for nearly US$2bn earlier in the year.
"As private equity firms start to come off the bench, this could attract other strategic buyers to the space," Deloitte suggests, adding that cross-border activity might accelerate with international buyers targeting US fintechs while American firms look to expand their global footprint.
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