Tariff Turmoil: The Hidden Threat to Tech M&A Market Recovery

In today’s volatile tech market, the question of whether mergers and acquisitions (M&A) can thrive amidst uncertainty remains pressing. Despite challenging conditions, recent trends suggest there may still be opportunities for M&A activity as we look ahead to 2025.

Market Conditions Impacting M&A Activity

The venture capital landscape faced significant challenges in 2022, with fundraising and exit opportunities—including M&A and IPOs—largely diminishing. However, as we approach 2025, there are signs of potential recovery in late-stage startup valuations.

Recovery Signs in Late-Stage Startups

Some significant deals have sparked optimism regarding a rebound, particularly with the previous administration’s more favorable stance towards M&A compared to the current administration, which has taken a tougher approach on antitrust issues.

• In the first quarter of 2025, 205 U.S. startup acquisitions were recorded, highlighting a resurgence in M&A activity.
• Notable deals included:
• CoreWeave acquiring Weights & Biases for $1.7 billion.
• ServiceNow’s acquisition of Moveworks for $2.9 billion.
• Google purchasing cybersecurity startup Wiz for an impressive $32 billion.
• Divvy Homes sold to Brookfield for $1 billion.
• Next Insurance acquired by Munich Re for $2.6 billion.

The Impact of Tariffs on Tech Stocks

However, the optimism faced a setback when former President Trump announced significant tariffs on major trading partners on April 2, 2025, leading to a steep decline in tech stock prices and raising concerns about the sustainability of M&A momentum.

While a temporary pause on these tariffs was announced a week later, the market remains in a precarious state. As noted by Stellar Tucker, managing director at Truist Securities, the outlook for 2025 has become less optimistic compared to initial projections.

Challenges Facing M&A Activity

Several factors contribute to the stagnation of M&A activity in uncertain markets:

• Volatile Valuations: Large public tech companies are hesitant to acquire new businesses when their own stock valuations are unstable.
• Investor Caution: Companies are reluctant to spend cash on acquisitions during periods of market volatility, opting instead for stock buybacks.
• Uncertain Valuations: Many late-stage startups are grappling with valuations that no longer align with their previous high points, creating hesitation in decision-making.

Opportunities Amidst Uncertainty

Despite a slowdown in the M&A landscape, there are still opportunities for strategic acquisitions. According to Thomas Earnest, a partner at Mintz, companies that have been exploring potential sales may now be reconsidering their options in light of recent market changes.

He emphasizes that startups unable to secure funding may still pursue acquisitions, albeit at lower valuations. Additionally, well-capitalized companies in the AI sector, such as OpenAI, are likely to continue making acquisitions, as evidenced by rumors of their interest in the AI coding startup Windsurf for $3 billion.

The Future of M&A in 2025

As we progress into the second quarter of 2025, experts like PitchBook’s Stanford express concern that the recent developments could significantly impact M&A activity for the remainder of the year. The potential for renewed tariffs later in the year adds another layer of uncertainty, affecting market stability.

Ultimately, the window for robust M&A activity may be narrow, with the second half of the year historically slower due to seasonal trends. The prospects for a stable 2025 are uncertain, making it crucial for stakeholders to stay informed and adaptable.

For more insights on the evolving tech market and M&A landscape, consider visiting PitchBook or TechCrunch.