Governmental policies and actions of the Federal Reserve have been the primary drivers of M&A trends over the past two decades, creating cycles of growth, volatility, and contraction. Each phase of intervention from stimulus to shifts in tax policy has reshaped the market and defined private equity strategies.
As we approach the end of 2024, understanding these policy-driven cycles is crucial to anticipate the next shifts in deal-making trends.
We have tracked private equity platform acquisitions and exits for 25 years as part of our M&A Research Database. The graph below shows the monthly trends of private equity deal flow and includes more than 80,000 acquisitions and 32,000 exits.
Examining the trends of these two decades of data, we can see three distinct phases, each significantly shaped by Fed actions and government policies and interventions. Each phase showcases the overwhelming influence of governmental fiscal and regulatory policies and the impact of the Federal Reserve on M&A. Both shape the M&A market’s trajectory.
Phase 1: Stimulus and Growth (2003–2008)
Following the 2003 recession, government stimulus helped reignite the economy. From 2004 to 2008, there was sustained growth, albeit with the warning signs of asset bubbles that burst in Q4 2008, leading to the 2009 recession. Government actions during this period laid the groundwork for a long cycle of recovery and expansion.
Phase 2: Stimulus Recovery and Expansion (2009–2019)
The Great Recession of 2009 prompted another round of stimulus efforts, which lasted through mid-2019. Between 2010 and 2019, private equity acquisitions saw a steady upward trajectory, driven by a combination of economic growth and Fed policy. The spike in both acquisitions and exits in December 2012 was spurred by a potential tax policy change that threatened to move capital gains rates from15% to 25% in 2013. Although the tax rate ultimately did not change, the threat of it created the spike in deal flow in December 2012. By late 2019, the market was showing signs of fatigue, setting the stage for the next big shift.
Phase 3: Post-COVID Surge and Market Contraction (2020–2024)
The COVID-19 pandemic in 2020 disrupted the M&A landscape, although the market was already starting to falter in late 2019 due to Fed actions aimed to reduce its balance sheet. However, massive government stimulus in 2020–2022 reignited capital deployment across Private Equity with acquisitions peaking in late 2021 and early 2022. As stimulus measures tapered off, beginning in 2023, inflation and rising interest rates began to squeeze deal flow, leading to a reduced pace of PE acquisitions through 2024.