Strategic financing in 2025: Key trends and predictions

As 2025 begins, we expect to see activity in the global financing markets in the year ahead to be shaped by: 

• macro-economic influences, including unrelenting geopolitical volatility, policymaker decisions, and also a more stable credit and interest rate environment – although, despite rate cuts, interest rates remain high;
• ongoing focus on sustainability, both in the energy sector and for companies in other sectors, in a more complex political and regulatory environment; and
• accelerating advances in technology, particularly AI and related infrastructure development.

In this blog, we assess the likely impact of these overarching and often interrelated themes for corporates, equity investors and finance providers across different debt markets.  

• Acquisition financing opportunities. Notwithstanding continued geopolitical headwinds, commentators predict that global M&A volumes will surge in 2025, with lower inflation, some reductions in interest rates to ease finance costs, and narrower valuation gaps between sellers and buyers^1,2. Some companies will seek new capabilities, notably the acquisition of tech businesses by companies outside the sector. We also expect to see acquisitions of distressed assets from sectors (and businesses) hit hardest by continued economic uncertainty. Strategic buyers featured heavily in M&A activity in 2024, accounting for 71% of deals in Q3³ and, with increased M&A this year, we foresee a consequential uptick in acquisition financing for strategic corporates. Bridge to bonds were a key trend in corporate acquisition financings in 2024, especially for US-UK deals, and we expect the benefits of a bridge loan (speed, certain funds) with a later capital markets take-out to remain an attractive combination for buyers. Continued higher interest rates and cost of equity capital will also encourage some companies to consider alternative forms of financing such as (where they have suitable businesses and asset portfolios) secured asset-backed facilities, or convertible bonds issuances.
• Energy transition. The focus on renewable energy projects that has characterised recent years will continue in 2025, in light of global sustainability targets, and is likely to increase. We expect to see significant investment in this sector and with it, significant requirements for financing. Many of these developing industries are capital intensive and asset heavy, which can present challenges for early-stage companies. Access to debt capital in significant size and at an efficient cost can often be critical to support continued growth, in addition to equity capital needs. In recent years we have seen an increase in the use of secured asset-backed financing facilities to fund investment in renewable energy hard assets and infrastructure, such as electric vehicles or consumer residential solar equipment. This is a financing solution which offers scalability beyond traditional corporate debt and can be applied in a cross-border context. As for energy sub-sectors to watch, in addition to traditional renewables, we have also seen increasing interest in improving bankability of battery and energy storage systems, as well as hydrogen and carbon capture and storage, as financiers grapple with the developing business models of these transition strategies.
• Sustainable finance: contrasting approaches. While global issuance volumes of sustainable finance have declined since 2022, sustainable loan volumes remain steady – increasing 26% over Q1-3 2024 compared to the same period in 2023⁴. Continued focus by industry bodies globally and by market participants has contributed to a more developed product, with greater transparency and more rigorous KPIs. There is a noticeable divide in borrowers’ response to this, however, and we expect this to continue in 2025: 
  • On the one hand, sustainable financing is a keystone of some businesses’ ESG strategy – as seen in the European automotive industry or for certain energy companies, for example. In Germany, the loan, bond and Schuldschein markets have witnessed a shift from sustainability-linked to green financing, with strict KPIs and green use of proceeds. There remain particular bright spots for sustainable finance in developing Asia too, notably as development finance institutions impose certain standards as a requirement to access concessionary financing.
  • Other companies have transitioned from sustainable financing and its reporting requirements and additional steps for bank approvals. In the UK, as the market has moved so far since the early days of sustainability-linked loans, there is often a need for extensive renegotiation to update ESG provisions on a refinancing, and some borrowers have opted to replace sustainability-linked debt with regular facilities. These companies are not, however, departing from ESG commitments but instead evidencing their credentials in other ways, with publicised strategies and targets. In the US, the incoming Trump administration’s anti-ESG stance is expected to accentuate a trend that had already materialised in 2024, of reduced offering of ESG-focused financial products and financing.
• Growth in data centre financing opportunities. With soaring demand for advanced computing capacity, especially with the rapid evolution of AI, the data centre sector continues to boom. Matching this demand is equity investor appetite for exposure to these non-traditional assets. Standing at the intersection between digital transformation and sustainability, the sector accounts for 1-1.5% of global electricity consumption⁵. We expect to see considerable equity and debt investment in this sector in 2025. Within Asia-Pacific, data centres largely remain financed on a project finance basis. That said, there is increasing interest from both sponsors and operating companies to fund the equity portions of future developments via the raising of structured equity (eg preferred shares). In Europe, data centre financings are generally structured depending on the nature of the financed assets and investor preferences, using technology borrowed from real estate finance (focused on value of the asset), project/infrastructure finance (focused on stable cashflow generation of the related operating business) and/or securitisation (focused on future lease payments from large corporate end users). 2024 saw the first ABS financing for a UK data centre portfolio, which offers another route to lower cost debt capital. In the US, where the market for ABS financing of data centres is more mature, and has developed significantly in the last five years, we expect to see more and more smaller players approach ABS solutions in the light of tightening spread and rating agencies’ increased familiarity with this type of financing. However, we anticipate that ABS financing will not be the only source of data centre financing to increase in the US in 2025. Project financing solutions will remain in demand and we also expect private credit to seize opportunities in this asset class.
• Increased use of derivatives in response to market uncertainty and expected increase in M&A activity. Against a backdrop of volatility, we predict that derivatives will continue to play a significant role in the way businesses manage risk. In line with a trend observed in 2024⁶, we expect volumes of FX and commodity swaps, in particular, to rise in 2025 in light of volatility due to geopolitics and economic uncertainty. The expected uptick in M&A activity, coupled with a climate of global uncertainty, may result in increased demand for deal contingent swaps used to hedge FX or interest rate risk between pricing and closing of M&A transactions. While interest rates remain high, alternative forms of financing such as convertible bonds will continue to gain momentum as a valuable option for a broad variety of corporate players, resulting in an increased use of equity derivatives, such as capped call options, to hedge dilution risk.
• Reduced regulatory burden on financial market activity. Regulatory reforms are on the horizon for financial services in 2025. In the US, a roll back of proposed banking regulations and diminished focus on regulatory enforcement actions are expected from the incoming Trump administration – read further predictions here. The impact of the close ties forming between the incoming administration and certain VC and Wall Street environments from a financial regulatory perspective is yet to be determined. A significant shift in regulatory capital requirements for US banks could reduce demand for regulatory capital relief transactions that saw an uptick in recent years, although this would not materialise overnight. In the UK, the Government announced financial services reforms last November, arguing that “the UK has been regulating for risk, but not regulating for growth”. It has issued growth-focused remit letters to regulators and a new Financial Services Growth and Competitiveness Strategy will be published in spring 2025. Some policy initiatives have been announced already, and more are awaited – read more from the UK perspective here. Similarly in the EU, the Mission Letter from Ursula von der Leyen, President of the European Commission, to the Commissioner-designate for Financial Services and the Savings and Investments Union, advocates “reducing administrative burdens and simplifying legislation”, in particular reducing reporting requirements, and mandates a review of the regulatory framework ”to ensure that innovative, fast-growing European companies and start-ups can finance their expansion here in Europe, while ensuring financial stability”.

Look out for our further insights on these themes as 2025 gets underway and, if you would like to discuss any of them, please contact any of the authors or your usual Freshfields contact.