Three converging signals are reshaping the financial advisory and capital markets landscape heading into the second half of 2025: mounting stress in private credit portfolios, a resurgent dealmaking cycle, and intensifying regulatory competition for investment talent across major financial centres. For CFOs, General Counsel, and M&A Directors operating across European and global markets, understanding the interplay of these forces is no longer optional — it is a prerequisite for sound capital allocation and transaction strategy.

Private Credit Under Pressure: Unrealised Losses and Transparency Risk

A Reuters review of first-quarter 2025 regulatory filings revealed that unrealised losses at U.S. private credit lenders have deepened to their worst level since 2022. Compounding the concern, payment-in-kind (PIK) income — whereby borrowers defer cash interest payments — remains elevated, a pattern that historically signals underlying borrower stress masked by accounting flexibility.

For mid-market borrowers and their advisors, the consequences are direct and near-term:

  • Repricing risk: Lenders facing tighter economics are likely to widen spreads on new originations and renewals, increasing the cost of floating-rate debt precisely when many borrowers are already managing elevated base rates.
  • Covenant tightening: Heightened credit scrutiny will translate into more restrictive maintenance covenants and tighter EBITDA definitions in new facilities, reducing operational flexibility for portfolio companies.
  • Refinancing access: Borrowers approaching maturity walls in 2025–2026 should anticipate longer lead times and more demanding due diligence processes as lenders reassess risk appetite.

From a treasury management perspective, European corporates with U.S. private credit exposure — whether as borrowers or as limited partners in credit funds — should commission independent portfolio reviews and stress-test refinancing assumptions against a scenario of 150–200 basis points of additional spread widening. General Counsel should also review disclosure obligations under IFRS 7 and relevant fund documentation where PIK accruals may affect NAV representations.

M&A Momentum and the Return of Strategic Dealmaking

Against this backdrop of credit market caution, Goldman Sachs has projected that global M&A volumes could approach the record levels seen in 2021 — a year that saw approximately $5.9 trillion in announced transactions. This forecast reflects a confluence of factors: compressed valuations in certain sectors, significant private equity dry powder estimated at over $2.5 trillion globally, and a gradual easing of antitrust uncertainty in key jurisdictions.

For financial advisory and restructuring professionals, this recovery presents a nuanced opportunity. The deals likely to dominate 2025 are not the mega-cap, leverage-heavy transactions of 2021, but rather selective, strategically disciplined combinations — cross-border technology acquisitions, carve-outs driven by portfolio rationalisation, and distressed-asset consolidations in sectors where private credit stress creates forced sellers.

European M&A Directors should note that the tighter private credit environment in the U.S. may actually accelerate deal flow in European mid-markets, where bank-led financing remains more accessible and regulatory frameworks — including the EU’s revised Merger Regulation — are increasingly well-understood by sophisticated acquirers. Digital transformation assets, particularly in fintech and enterprise software, continue to command premium multiples and attract cross-border interest from both strategic and financial buyers.

Policy Competition for Capital: Hong Kong, India, and the European Response

Two regulatory developments beyond the Atlantic deserve close attention from boards and investment committees. First, Hong Kong’s reported consideration of a tax waiver on fund managers’ performance bonuses signals an escalating competition for capital markets talent and fund domiciliation — a dynamic with direct implications for European asset managers evaluating Asia-Pacific fundraising strategies. If enacted, such a measure would intensify pressure on jurisdictions like Luxembourg, Ireland, and the UK to revisit carried interest and bonus taxation frameworks.

Second, Indian life insurers’ push for a higher tax-free threshold on qualifying long-duration policies — if adopted by the government — could meaningfully expand the pool of patient capital available in one of the world’s fastest-growing insurance markets. For European asset managers and infrastructure funds seeking long-duration liability-matching investors, India’s evolving savings architecture represents an increasingly material fundraising consideration.

Domestically, the continued inflow of nearly $20 billion year-to-date into municipal fixed-income ETFs in the U.S. underscores a broader investor preference for liquidity, cost efficiency, and transparent pricing in fixed income — a trend that European banking regulation and product design teams should monitor as UCITS ETF adoption accelerates.

Implications for Decision-Makers: Four Priority Actions

  • Stress-test private credit exposure now. CFOs and treasurers should model refinancing scenarios under deteriorating lender conditions before year-end maturities arrive.
  • Accelerate M&A pipeline development. The window for disciplined acquisitions at reasonable valuations may narrow as competition for quality assets intensifies through H2 2025.
  • Monitor Asian regulatory arbitrage. Boards with fund structures or talent strategies spanning Europe and Asia should track Hong Kong and Singapore policy developments quarterly.
  • Review disclosure and compliance frameworks. General Counsel should ensure PIK income treatment, NAV calculations, and lender covenant compliance are documented to the standard regulators and counterparties will expect under increased scrutiny.

Key Takeaway

The mid-2025 financial environment rewards preparation over reaction. Private credit stress is real and measurable; M&A recovery is credible but selective; and policy competition for capital is accelerating across jurisdictions. Decision-makers who align their financial advisory, treasury, and transaction strategies to these realities now will be materially better positioned than those who wait for consensus to form.