Massive Mega-Deals Drive U.S. M&A Surge as Deal Count Slips

July 2025 marked a paradox in U.S. M&A: fewer deals but much larger dollar values. While the total number of announcements fell modestly from 1,077 in June to 1,038 in July (-3.6%), the sum of deal values surged almost 60%, driven by mega-deals such as Union Pacific’s $85B planned takeover of Norfolk Southern. This reflects a trend toward fewer but more transformative & high-stake transactions dominating headlines and portfolios.

Sectorial performance reveals a sharp divergence: only 4 of 21 sectors saw year-over-year gains in three-month rolling deal count—Non-Energy Minerals, Electronic Technology, Technology Services, and Miscellaneous. On the flip side, sectors like Finance, Health Services, Producer Manufacturing, and Industrial Services posted marked declines in deal volume, signaling either shifted priorities or stronger headwinds in those industries—such as regulatory scrutiny or macroeconomic stress. This uneven recovery underscores that value recovery is being driven by a limited subset of industries.

The centerpiece deal of July, Union Pacific’s proposed acquisition of Norfolk Southern, is transformative both operationally and strategically. Valued at $85B enterprise value (at $320 per share for Norfolk Southern), the merger combines Western and Eastern U.S. rail networks across over 50,000 miles aiming for $2.75B in synergies per year. Its structure—72% stock, 28% cash—and equity split (Norfolk Southern shareholders getting ~27% of the combined company) emphasize risk sharing. But while boards unanimously approved it, the deal triggers rich regulatory obstacles under the Surface Transportation Board (STB)’s scrutiny, strong labor union pushback especially in light of recent safety incidents, and concerns over diminished competition. Timing is ambitious: companies plan regulatory filing in six months, target closing by early 2027.

Broader outlook: market-wide spending is being distorted by a handful of very large transactions, which masks softness in deal flow volume. For August 2025, FactSet data shows a 15% drop in deal announcements and a 35% drop in aggregate spending from July’s elevated level. Meanwhile, forecasts from EY-Parthenon expect deal volume in 2026 to surpass 2025 driven by high-value and transformative acquisitions, especially in areas like AI, tech, and digital transformation. However, persistent regulatory risk, valuation gaps, and more cautious shareholders/lenders will likely slow pace and raise execution risk.

Strategic implications for investment banking and corporate strategy:

• Advisors and corporates should focus resources on mega-deal structuring, cross-border and infrastructure-heavy sectors where synergies and regulatory justification can be marshaled.
• Companies in declining sectors must differentiate around technology or strategic niche specialization to attract M&A interest.
• Regulatory risk is no longer peripheral—rail, infrastructure, heavily regulated industries should engage early and transparently with public, labor, and governmental stakeholders.
• Financial structuring (stock vs cash, reverse termination fees, leverage) will be critical to negotiating large deals under volatile capital markets and regulatory conditions.

Open questions to monitor:

• Will the STB approve the UP-NS deal, under what conditions, and what precedent will that set for future railroad consolidations?
• How will labor and safety concerns influence regulatory decisions and post-merger operational performance?
• Can declining sectors reverse course, or are they permanently less attractive for dealmakers?
• Will 2026 see volume draw from pent-up demand, or will capital cost, valuation mismatches and macro risk limit scale?