Foley & Lardner’s Outlook on Exits and M&A in 2025

Why recovery in the investment climate will take longer than expected

A few months ago, before the election, I predicted we’d see overall investment activity in venture pick up by Q4 or, at the latest, Q1 of the new year. The signs were there: a positive outlook for M&A, large venture firms raising significant funds, and a buzz of optimism among investors and entrepreneurs.

Well, after attending Foley & Lardner’s Looking Back at 2024/Looking Forward to 2025 media roundtable in San Francisco last week, I’m thinking I need to move the goalposts.

The panel, featuring five of the firm’s partners and moderated by Partner Tom Carlucci painted a picture of a business market still grappling with uncertainty and recalibration, particularly within the broad investment community. It’s not that optimism has collapsed like a poorly timed SPAC. It’s more like the energy has faded into a grayscale version of a unicorn. It’s still magical but lacking its former luster.

Overall, the panel of attorneys emphasized that the tech and venture communities will need to navigate significant challenges as we head into 2025.

After setting the stage with a mix of cautious optimism and stark realities, the Foley & Lardner panelists dug into the pressing issues facing venture and private equity markets as we approach 2025. Partners Louis Lehot and Brian Wheeler offered insights into the exit environment, IPOs, M&A, and the overall economic forces at play.

Exit Market

Lehot didn’t mince words about the state of venture-backed exits. “The IPO window is closed,” he said bluntly, pointing to dismal numbers for exits this year. Adding to the challenge, capital calls have slowed as LPs wait for an improved DPI (a measure of liquidity on realized exits) from their GPs. “LPs want returns,” he noted, underscoring the pressures building on venture firms.

Wheeler echoed similar concerns on the private equity side, acknowledging that while exits have ticked up in the latter half of 2024, the pace remains below expectations. Inflation and interest rates continue to weigh on the market, he said, but there are glimmers of hope. “We’re seeing more banks come in, providing liquidity,” Wheeler said. However, he admitted it’s still a long road ahead before exit activity returns to more robust levels.

A Possible Bright Spot?

Could corporate M&A offer some relief? Wheeler and Lehot seemed to think so, though with plenty of caveats. “Corporate M&A and the IPO window for VC-backed companies work in tandem,” Wheeler said, noting there’s potential for increased exit momentum if IPO activity resumes.

While Wheeler pointed to the potential synergy between corporate M&A and IPO activity, Lehot highlighted the barriers that could temper any resurgence. He noted that the slow pace of M&A in 2024 reflects broader market hesitations, adding that while the election results provide some clarity, challenges remain, particularly around larger transactions and antitrust scrutiny.

Lehot also highlighted how the incoming administration could shake things up. With Gail Slater, a vocal critic of Big Tech, potentially heading the DOJ’s antitrust division, the fate of large M&A deals remains uncertain. The tech community could face significant hurdles with these transactions.

It will also be interesting to see how Paul Atkins, tapped to chair the SEC, impacts the stock market. A crypto advocate with prior experience as SEC chair under President George W. Bush, Atkins could scale back regulations. Still, the jury’s out on how his leadership will shape market trends.

Waiting for a Clearer Path Forward

The Foley & Lardner team addressed more than just exits and M&A during the nearly 90-minute, on-the-record discussion. But the overarching message was clear: patience and adaptability are key for the year ahead. Whether it’s navigating antitrust scrutiny, managing LP expectations, or grappling with inflation and interest rates, venture and private equity players are sure to face many challenges ahead. As Wheeler aptly put it, “The markets hate uncertainty.”

So, back to my earlier crystal ball gazing and my previous post. I believe exits will happen and their numbers will pick up and that will fuel more venture investing, but not quite yet. After the Foley & Lardner panel, I’m revising my prediction: let’s look to Q2 or Q3 of 2025 for meaningful change.

What’s your take? Will 2025 bring clarity and momentum, or are we in for more uncertainty and delays?