California is at the center of the United States M&A rebound. Deal flow is accelerating, momentum is strongest in technology and AI, and private equity firms are becoming increasingly aggressive in deploying their reserves of unspent capital. Together, these dynamics make California one of the most important states to watch as 2025 winds down and the market heads into 2026.
Rising Deal Volume
Dealmakers across the U.S. have reported higher levels of optimism in 2025 than in the years immediately prior. California has been a direct beneficiary. The state’s deal volume—while uneven across sectors—has increased steadily, quarter over quarter, with the second half of 2025 showing the most acceleration.
For California’s M&A ecosystem, this rise in deal flow has created a more competitive environment, especially in industries where startups cluster. Bay Area technology, Los Angeles media and entertainment, and San Diego biotech are attracting heavy activity. More buyers chasing the same attractive assets means sellers have gained leverage, and valuation discussions are often protracted.
Technology and AI Dominate
No sector in California has been more central to the M&A rebound than technology, particularly companies advancing AI. Reports from EY, Crunchbase, and the Los Angeles Times all point to a surge of deals focused on infrastructure, hardware, and software designed to scale machine learning and large-language models.
One of the most telling signs was Google’s acquisition of Wiz earlier in 2025, a multi-billion-dollar deal that underscored strategic buyers’ appetite for high-impact technologies. California startups, many of which are globally recognized leaders in AI and data platforms, are natural acquisition targets.
There has also been an ongoing trend of “acqui-hires,” where entire engineering teams are purchased rather than the business itself. However, this form of dealmaking is showing signs of tapering. As AI companies mature and demonstrate commercial traction, acquirers are focusing more on tangible revenues and defensible intellectual property than on simply absorbing talent.
The implications for California are straightforward: the state’s leadership in AI translates into sustained buyer interest, but the criteria for acquisition are becoming more disciplined.
Private Equity’s Expanding Role
Private equity (PE) firms, sitting on historically high levels of “dry powder,” are intensifying their push into California. Firms that delayed transactions in 2023–2024 due to interest-rate volatility are now under pressure to put capital to work.
Analysts from KPMG, Goldman Sachs, and Deloitte expect PE participation in 2025 to rise not only in volume but also in average transaction size. Sponsor-to-sponsor transactions and creative deal structures—such as partial recapitalizations or joint ventures—are gaining ground.
For California sellers, this surge in PE activity is a double-edged sword. On one hand, more buyers mean more competitive bidding, especially in desirable sectors like tech, healthcare, and consumer goods. On the other, PE’s financial discipline can create valuation standoffs, particularly in the middle market. Still, the overall effect is an increasingly liquid market where strategic buyers and PE sponsors regularly compete head-to-head.
Shift Toward Larger Deals
One of the defining characteristics of 2025’s M&A market is the prominence of larger transactions. While overall deal volume is rising, deals exceeding $1 billion are responsible for a disproportionate share of total deal value. Analysts describe this as a shift toward quality over quantity: buyers prefer fewer, bigger, and more transformative acquisitions.
In California, this tilt benefits large, established firms—think Silicon Valley technology leaders, biotech giants, and media conglomerates. These businesses are either executing megadeals themselves or serving as prime targets for acquirers with deep balance sheets.
For smaller and mid-sized companies, the story is more complex. While high-quality businesses with defensible market positions still attract strong interest, those without clear growth trajectories are struggling to command attention in a market oriented toward scale.
Mid-Market: Resilient but Constrained
California’s mid-market, a diverse segment ranging from family-owned businesses to growth-stage firms, remains active but faces headwinds. Buyers are still interested in quality assets, but broader macroeconomic uncertainty—tariffs, interest-rate expectations, and regulatory pressures—has created valuation gaps.
Firms that can demonstrate unique growth stories, recurring revenue, or leadership in niche verticals continue to attract attention. For example, mid-sized clean-tech firms in the Inland Empire and healthcare services businesses in Orange County have been able to command premium multiples.
Conversely, businesses that cannot clearly differentiate themselves are seeing muted buyer interest, with many forced to postpone sale processes until market conditions stabilize.
Regional Concentration Within California
The Bay Area continues to dominate California’s M&A activity, particularly in tech and AI. Positive economic trends in San Francisco have spillover effects on surrounding regions like Oakland, which is beginning to see increased attention from investors and corporate buyers.
Los Angeles remains a focal point for entertainment, streaming, and media transactions, especially where state tax incentives are designed to retain film and television production in-state. San Diego’s biotech and life sciences sector has also remained strong, with acquirers seeking access to the region’s cluster of research talent and innovation.
This geographic concentration highlights California’s unique role as a national driver of M&A. The state not only produces some of the largest deals but also shapes sector-specific activity that influences nationwide trends.
As Q4 2025 unfolds, California’s dealmakers are already looking toward 2026. Several factors will determine whether the momentum carries forward:
Monetary Policy: If interest rates begin to ease, leveraged buyouts and debt-financed acquisitions will become more attractive, fueling both PE and corporate activity.
Regulation: New California laws—such as enhanced oversight of healthcare transactions and proposed rules governing AI—could slow or reshape deals in key industries.
Sectoral Opportunities: AI, biotech, and clean energy remain the state’s strongest M&A magnets. Firms positioned at the intersection of these trends are likely to command the highest premiums.
Middle-Market Positioning: For California’s mid-sized businesses, the challenge will be to stand out by demonstrating sustainable growth stories, profitability, and resilience against macro shocks.
The competition for talent, intellectual property, and innovative platforms will remain fierce. Sellers who anticipate these pressures and prepare early will be best positioned to capitalize on California’s dynamic deal environment.
California has reasserted itself as the leading engine of U.S. M&A in 2025. Rising deal volumes, a surge in technology and AI acquisitions, aggressive private equity deployment, and the dominance of megadeals have defined the year’s market dynamics.
Yet the picture is nuanced. Middle-market firms face valuation challenges, regulatory oversight is tightening in sensitive industries, and the cost of doing business in California remains high. Despite these frictions, the state’s unique concentration of innovation, capital, and talent ensures it will remain at the forefront of M&A well into 2026.
For buyers, the imperative is clear: act decisively in sectors where California has global leadership. For sellers, the takeaway is equally straightforward: position your business to highlight defensible advantages and long-term growth potential. As 2025 closes, the state’s role as the bellwether of U.S. M&A is once again firmly established.
Sources: Deloitte, BPM, Citizens Bank, EY, CrunchBase, Los Angeles Times, KPMG, Goldman Sachs, Deloitte, EY, Ogier, Moore Colson, Harris Williams, Los Angeles Times