Now that the holiday season has passed and 2025 is upon us, many Texas M&A lawyers have begun intensely preparing for what the deal space could bring to them and their clients in the new year.
2024 began with several macroeconomic questions that transaction lawyers were most concerned about, including an unpredictable market environment, high interest rates, rising geopolitical tensions and an impending election that many believed would impact Texas deals regardless of the outcome.
Expectations for 2025
While some of those issues are still prevalent in lawyers’ minds as we enter the New Year, many have begun to be answered, which has many excited about what 2025 may bring in the M&A markets overall.
“Macro events will continue to influence deal flow [in 2025], but while we started 2024 with a full deck of challenging macro indicators, 2025 looks like it will open in a more favorable, stable market environment,” Nick Dhesi, managing partner of Latham & Watkins’ Houston office said, noting the firm is expecting an active 2025 for M&A across multiple sectors.
Hunton Andrews Kurth partner Philip Haines shared Dhesi’s sentiment, saying, “We see a lot of good indicators for a very healthy M&A environment in 2025 and are excited to get underway.”
Additionally, Haines believes that continuing declines in interest rates and borrowing costs will allow more deals to come to fruition that have previously not closed due to clients not being able to obtain debt financing or not feeling comfortable with the terms they were getting from lenders.
“When interest rates and borrowing costs drop, it opens up debt financing to more companies; more financing means more transactions can move from term sheet to closing,” Haines said.
Breen Haire, co-managing partner of Simpson Thacher’s Houston office and co-head of the firm’s energy and infrastructure practice, likewise anticipates a busy deal landscape in 2025.
He specifically pointed to the reopening of financing markets, greater stability in valuations and rising confidence in the market’s long-term outlook as factors that create “an environment ripe for increased M&A activity.”
John Grand, an M&A and private equity partner at Vinson & Elkins, also expects a busy Texas M&A market in 2025 and added that the increasing number of individuals moving to Texas from other states could also increase the number of deals the state sees in the New Year.
“The trend of companies and investors moving to Texas should also continue, which will further bolster Texas M&A,” Grand said.
How Will the New Administration Effect Deals in 2025?
However, despite the more favorable deal environment most firms forecast for 2025, they are still keenly watching some factors that could negatively affect the space.
Specifically, they are paying attention to the new presidential administration: what it will do with the Inflation Reduction Act and how it will affect some of its clients.
“For our energy transition clients, especially clients focused on benefits under the IRA, there are concerns that they’ve spent thousands of hours on projects that may no longer qualify for federal funding at some point in 2025; clients working to obtain funding under the IRA are currently moving at a hundred miles per hour trying to get terms in place before Jan. 20,” Haines said, noting that despite this he still views the new administration as positive for the firm’s traditional oil and gas clients.
Haire shared that sentiment: “The new administration will make changes in the country’s energy policy, which will likely affect investment opportunities in both conventional and renewable energy.”
However, Haire noted that many investors view energy transition as a secular change that will persist beyond election cycles, particularly for those who take a longer-term view.
On the other hand, Latham believes the new administration will likely focus more on supporting traditional energy sources and creating a more commercially oriented regulatory environment in 2025 while offering opportunities for more significant transactions.
“We ultimately anticipate the administration maintains an ‘all-of-the-above’ energy approach, as that is what we really need to meet growing demands, including those driven by AI and data centers,” Dhesi said.
V&E’s Grand says a more favorable regulatory environment will affect deals beyond the energy market.
“A potential reduction of regulations on commercial banks would have a positive impact by increasing the availability of credit for investment and development activity,” Grand said.
Key M&A Focus Areas for 2025
Unsurprisingly, Texas law firms are expected to continue prioritizing the oil and gas, energy and infrastructure sectors in the upcoming year.
Dhesi said Latham is actively courting private equity clients who are exploring infrastructure investments.
“[It] is a marketplace that rewards experience and creativity and where we expect significant opportunity in 2025,” Dhesi said, adding that the firm is also looking for ways to continue expanding into the technology and power spaces.
Meanwhile, V&E plans to continue focusing on its recent growth in technology and infrastructure as its clients look for ways to invest “in the digital future.” Additionally, it will look to expand its other core traditional Texas practice areas.
“We expect all of these areas to remain busy in 2025,” Grand said.
Simpson Thacher wants to continue focusing on its Houston team’s “traditional strengths” in the oil and gas sector and will also work to further its position in the infrastructure sector.
“Infrastructure is a leading asset class for many of our private equity clients, and we expect the growth of the sector to continue,” Haire said.
Overall, law firms are optimistic about the M&A sector in 2025, with expectations of increased activity and opportunity; however, many plan to closely monitor how the new presidential administration may impact the deals they are advising on and their clients.
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