Impact of market uncertainty on M&A transactions

Over the past decade, despite numerous macroeconomic shocks, infrastructure has matured as an asset class and is now a priority sector for fund managers. Infrastructure assets under management (AUM) have surged from $400 billion to approximately $1.5 trillion, reflecting strong investor interest. However, since 2022, fundraising and M&A activity have slowed. In 2023 and 2024, global infrastructure funds raised $94.7 billion and $94.8 billion, respectively, marking the lowest capital raised since 2015. Additionally, the number and volume of transactions have decreased significantly, from 3,477 transactions totalling $419.2 billion in 2017 to 1,951 transactions totalling $311.2 billion in 2024.[1]

With promising GDP growth projections, reduced inflation and interest rate cuts, 2025 was expected to see a turnaround in M&A activity and investment. However, the tariff disruptions in early April have introduced significant uncertainty, which may hinder the growth of M&A activity and fundraising for infrastructure in the next quarter.

Some of the trends to watch for M&A activity and fundraising over the coming months are discussed below:

1. Interest rate: themonetary policy response to the market volatility will shape the M&A outlook for the rest of the year. If central banks proceed with rate cuts, that will benefit asset valuations, incentivising certain investors to cash out, resulting in increased M&A activity. Holding current interest rates or increasing rates may discourage M&A activity by lowering valuation and widening the already significant valuation gap. Higher interest rates also drive capital away from core, core+ infrastructure towards high-risk opportunistic infrastructure (value added) as LPs demand higher returns in the current risk scenario. [2]
2. GDP growth: since the announcement of tariffs, the OECD has adjusted its forecast for GDP growth for the UK from 1.7%, as anticipated earlier, to 1.4% this year. [3] Similarly, Fitch Rating forecasts that the tariffs will negatively affect the eurozone growth, significantly impacting export-oriented economies like Germany. [4] M&A activity is correlated to GDP growth, and a reduction in GDP growth projection, or a worst-case scenario, a recession would adversely impact M&A activity.
3. Deal scrutiny: deal scrutiny timelines have been growing longer since the COVID-19 pandemic as buyers are adopting a cautious approach and assessing the impact of exogenous risks on businesses. The recent market instability may further prolong the deal scrutiny timeline as buyers and sellers try to assess the impact of tariffs on their supply chain. Based on feedback from our clients, lenders are asking developers to reassess their EPC cost projections in light of the new tariff changes. Reassessing construction costs and asset value may also result in some planned deals getting cancelled. Prolonged uncertainty may compel buyers to incorporate clauses like Material Adverse Change (MAC) to safeguard against significant events or business declines between signing and closing. [5]
4. Sectoral trends: over the last three years, renewable energy assets have accounted for about half of the infrastructure deal volume. [6] While the regulatory landscape for renewables in the US has become uncertain, there continues to be a positive outlook in the UK and Europe, which is encouraging for M&A activity in Europe. As the share of renewables in the energy mix has increased, there are significant grid challenges to resolve, resulting in a strong business case for investment in co-located units for generation, storage and offtake (e.g. data centres). Consolidation of digital infrastructure, especially fibre optic, is expected to drive M&A activity in fragmented markets like Germany. [7] In 2024, only six infrastructure funds accounted for over 50% of the fundraising. [8] As large infrastructure funds attract most of the capital and competition intensifies for large-scale deals, mid-market players may find it challenging to raise funds in an uncertain market environment.

In his latest insight piece, George Lagarias, Chief Economist at Forvis Mazars, highlights that uncertainty may be built as a longer-term factor in business and investment planning. The market uncertainty will likely trigger a response from central banks as they choose between managing inflation and managing growth. The impact of tariffs is very broad and rapidly evolving, which makes it hard to make broad predictions across the sector. However, it is reasonable to expect that looming uncertainty will influence M&A transaction activity and fundraising as investors adopt a cautious approach. From our discussion with clients, infrastructure appears more resilient than other asset classes, mainly because of its defensive qualities (inflation-indexed revenues, regulatory support, price inelastic public services). Prolonged uncertainty may lead to capital reallocation, and we may see infrastructure benefit from such a shift. Clients may also have varying degrees of concern depending on what sub-sector they operate in or at what stage in the life cycle their assets are.   

[1] Infrastructure in 2025: the outlook for fundraising, deals, and performance; [2] Infrastructure fundraising set to rebound—but some vehicles missed target – PitchBook; [3] UK and global economic growth forecasts cut – as Trump tariffs blamed | Money News | Sky News; [4] US Tariffs Would Heighten EU’s Growth and Fiscal Challenges; [5] Deals terms revisited | How M&A clauses and terms will evolve; [6] Infrastructure in 2025: the outlook for fundraising, deals, and performance; [7] M&A Trends for Renewable Energy & Digital Infrastructure in Germany – The Outlook for 2025 – Watson Farley & Williams; [8] Infrastructure Fundraising Report 2024 – With Intelligence