The return of the animal spirits
David Solomon is back. The Goldman Sachs chief is pounding the table for a massive resurgence in global M&A. After two years of stagnant deal flows and frozen credit markets, the narrative at 200 West Street has shifted from cautious preservation to aggressive expansion. Solomon’s recent appearance on the Goldman Sachs Exchanges podcast suggests that the firm is positioning itself for a windfall in investment banking fees. The logic is simple. Corporate balance sheets are bloated with cash. Private equity firms are choking on dry powder. The valuation gap that haunted 2024 has finally narrowed.
The mechanics of this rebound are rooted in the stabilization of the cost of capital. For eighteen months, buyers and sellers were locked in a stalemate. Sellers wanted the nosebleed valuations of 2021. Buyers demanded the fire-sale discounts of a high-rate environment. That bid-ask spread has finally collapsed. According to recent reports from Reuters, the volume of announced deals in the first three weeks of January has already outpaced the entirety of Q1 2024. This is not a fluke. It is the result of a coordinated realization that the Federal Reserve’s terminal rate is no longer a moving target.
The dry powder pressure cooker
Private equity is the primary engine here. Financial sponsors are currently sitting on an estimated $2.6 trillion in unallocated capital. This is not passive wealth. It is a ticking clock. Limited partners are demanding distributions, and the only way to generate them is to exit old positions and enter new ones. The “exit trap” of 2024, where firms could not sell portfolio companies without taking a significant haircut, is dissolving. As the IPO window opens wider, the path to liquidity becomes clear once again.
Global M&A Volume Projections (Billions USD)
Technical tailwinds and the IPO window
The technical structure of the market supports Solomon’s optimism. We are seeing a resurgence in the “convertible bond” market, a classic precursor to a broader equity rally. Companies are using these instruments to bridge the gap between high-interest bank debt and the equity markets. This allows for cleaner balance sheets ahead of a potential sale or public offering. Furthermore, the volatility index (VIX) has remained suppressed below 15 for most of the month, providing the stability necessary for large-scale underwriting.
Goldman Sachs itself is a primary beneficiary of this trend. Their investment banking revenue is highly sensitive to the “velocity” of capital. When deals happen, Goldman wins. Solomon’s commentary on Bloomberg yesterday emphasized that global economic growth is proving more resilient than the bears predicted. This resilience is fueling a “soft landing” narrative that encourages CEOs to take risks. The fear of a hard recession has been replaced by the fear of being left behind by competitors who are already consolidating their market share.
The shadow of the ten year treasury
Risk remains. The entire bullish thesis rests on the 10-year Treasury yield staying within a predictable range. If inflation data surprises to the upside in the coming weeks, the cost of debt will spike, and the M&A engine will seize up again. We are currently observing a delicate balance in the credit markets. Spreads on high-yield bonds have tightened to levels not seen since early 2022, suggesting that investors are willing to overlook potential defaults in exchange for yield. This is a classic late-cycle behavior that requires careful monitoring.
The table below illustrates the shifting landscape of deal valuations and volume over the last twenty-four months, highlighting the aggressive pivot we are witnessing in the current quarter.
| Metric | Q1 2024 (Actual) | Q1 2025 (Actual) | Q1 2026 (Projected) |
|---|---|---|---|
| Average Deal Size ($M) | 420 | 510 | 645 |
| Cross-Border Volume ($B) | 115 | 185 | 240 |
| Tech Sector Weighting (%) | 18% | 24% | 31% |
| Average LBO Leverage Ratio | 4.2x | 5.1x | 5.8x |
Solomon’s confidence is a signal to the broader market. When the head of the world’s preeminent investment bank tells you that momentum is building, it is usually because the pipeline is already full. The “Goldman Sachs Exchanges” insights are not just observations; they are a roadmap for the next two quarters of capital allocation. Institutional investors are already rotating out of defensive utilities and into diversified financials to capture this upside.
The next critical data point for this thesis will arrive on February 11. The release of the January Consumer Price Index (CPI) report will determine if the Fed can afford to remain on the sidelines or if a renewed tightening cycle will crush the dealmaking renaissance before it truly begins. Watch the 4.25% level on the 10-year Treasury. If we break above that, the optimism emanating from Goldman’s headquarters may prove premature.
