In a year marked by economic uncertainty and rising insolvencies, the field of mergers and acquisitions has witnessed a notable shift toward distressed acquisitions. M&A experts are now decoding how and why these deals are reshaping industries and offering unique opportunities for both buyers and sellers.

As macroeconomic headwinds intensify, the distressed M&A landscape demands strategic insight, rapid action, and meticulous due diligence. This article delves into the latest trends, drivers, challenges, and future outlook of distressed acquisitions in 2025.

Market Overview and Deal Activity

Global M&A volumes fell by 9% in the first half of 2025 compared with the same period in 2024, while overall deal values rose by 15%. This paradox highlights that fewer, larger transactions are taking place as corporations focus on high-value strategic moves.

US corporate M&A volumes are forecast to remain flat at approximately 1,142 deals in 2025, following an 18% surge in 2024. In the consumer and retail sector, Q1 recorded 458 deals, a slight 1% drop quarter-on-quarter, with deal value down 27% to $12.5 billion—evidence of selective activity amid broader market volatility.

Drivers and Transaction Structures

The surge in distressed M&A is fueled by mounting pressures on underperforming companies. Key drivers include:

• Rising insolvencies due to macroeconomic turbulence that force companies to seek buyers.
• Increased non-performing loans and tightening debt markets.
• Delayed filings creating a backlog of distressed assets.
• Sector-specific shocks, notably in retail and consumer goods.

Distressed transactions come in varied forms, each with unique benefits and risks:

• Out-of-court sales: Speedy and cost-effective, popular with middle-market companies.
• Section 363 bankruptcy sales: Offer strong buyer protections through court supervision.
• Assignments for the Benefit of Creditors (ABCs) and UCC Article 9 sales: Provide agile, less formal routes for smaller businesses.

Expert Insights and Private Equity's Role

Industry experts emphasize that distressed M&A requires specialized skills. As Dr. Jens Schmidt of Runkel observes, "Selling insolvent distressed assets is becoming increasingly more challenging due to lack of performance upside and deal financing options." Successful buyers deploy robust financial and strategic analysis alongside operational expertise.

Challenges commonly encountered in distressed deals include:

• Financing constraints in a rising interest-rate environment.
• Buyer caution over limited upside potential.
• Complex legal and contractual obligations.
• Necessity for cross-disciplinary due diligence teams.

Private equity firms have rapidly adapted, with over two-thirds incorporating distressed strategies into their 2024 and 2025 investment plans. These firms are attracted by discounted asset valuations and turnaround/arbitrage potential, often pursuing bolt-on acquisitions to integrate targets into existing platforms and extract synergies.

Sector Perspectives and Legal Considerations

In the consumer and retail sector, deal-making remains subdued but targeted. Acquirers focus on health and wellness, and "better for you" brands, using distressed channels to reshape portfolios for sustainable growth. Cherry-picking specific assets allows buyers to build more resilient models, as noted by Christopher Seagon of Wellensiek.

Legal frameworks play a pivotal role in transaction structuring. In asset purchases, buyers can choose which liabilities to assume, minimizing exposure to undisclosed obligations. Conversely, stock deals transfer all liabilities, necessitating detailed contractual negotiations. Strategic use of bankruptcy proceedings can help "cleanse" a company’s balance sheet, but requires careful planning.

Outlook: Risks and Opportunities

Despite growing insolvencies, the share of distressed M&A relative to all insolvency outcomes is expected to remain stable around 23%. Sixty-two percent of respondents to a global survey anticipate increasing distressed deal volumes in 2025, signaling robust demand from well-capitalized buyers.

Companies best positioned to capitalize on distressed opportunities have deep pockets, swift decision-making frameworks, and integrated teams capable of managing complex integrations. These high-stakes environments demand precise execution and a ability to move fast when acquiring assets.

For sellers, distressed M&A can preserve value and protect jobs. By engaging specialized advisors early, companies can navigate formal and informal sale processes to achieve the best outcomes for stakeholders.

As the year progresses, distressed acquisitions will continue to evolve, blending strategic financial engineering with operational turnarounds and digital transformation. For buyers and sellers alike, understanding the nuanced trends and mastering the legal and financial intricacies is key to success in this challenging yet rewarding segment of the M&A landscape.