Understanding the Current M&A Boom
The global mergers and acquisitions (M&A) landscape is experiencing a significant surge, largely driven by artificial intelligence (AI) demand. As companies reassess their portfolios in light of evolving market conditions, the total value of M&A activity reached a staggering $4.9 trillion in 2025, marking a nearly 40% increase from previous years. This growth trajectory is expected to carry into 2026, yet a critical issue looms: the capital available for these transactions is at a historic low.
Inside the Machine: The Mechanics of M&A Activity
Despite a rocky start in 2025 due to geopolitical tensions and economic fragmentation, M&A activity rebounded sharply as central banks adjusted interest rates, making borrowing less expensive. Companies are now more willing to engage in large-scale transactions, with a Bain & Company survey revealing that 80% of M&A executives anticipate maintaining or increasing deal activity in the coming year. This optimism stems from improved macroeconomic conditions and a backlog of private equity and venture capital assets awaiting exit.
The Hidden Mechanism: Capital Constraints and Strategic Decision-Making
However, there is a critical caveat. The pool of discretionary capital for M&A is historically thin, forcing executives to be more discerning about their deal choices. According to Bain, the proportion of capital allocated to M&A hit a 30-year low in 2025, as companies redirected funds toward dividends, buybacks, and R&D. This shift indicates a need for executives to rigorously evaluate whether potential M&A pathways will enhance their competitive positioning in attractive markets.
What They Aren't Telling You: The Role of Private Equity
As traditional funding sources tighten, private equity has emerged as a dominant force in the M&A landscape, accounting for approximately 40% of global activity. Private equity firms are eager to deploy idle capital, while borrowers increasingly turn to private credit funds for flexibility. This shift is crucial as it highlights the growing importance of private capital in the deal-making process.
The AI Capital Expenditure Supercycle: A Double-Edged Sword
The AI boom is not merely a backdrop; it is a driving force behind the current M&A frenzy. Mega-deals valued over $5 billion constituted more than 73% of the increase in deal value in 2025. However, this surge in capital expenditure on AI infrastructure could temper M&A activity in the short term. As companies invest heavily in data centers, energy, and technology development, they may prioritize internal growth over acquisitions.
Strategic Implications for Executives
Executives must navigate this complex environment with a keen focus on disciplined reinvention and value creation. The imperative is clear: companies must reassess their operational boundaries and make bold decisions about the capabilities they need to own versus those they can access through partnerships or acquisitions. The fear of missing out on strategic growth opportunities is palpable, yet caution is warranted given the tightening capital landscape.
Looking Ahead: The Future of M&A in 2026
As we look to 2026, the expectation of continued consolidation and geographic expansion remains strong. The AI-driven demand for computing power across various sectors will likely fuel further large-scale transactions. However, executives must remain vigilant about the potential capital constraints that could arise from heavy investments in AI infrastructure.
Source: CNBC Markets