In 2025, high-grade U.S. corporations are increasingly favoring equity and cash financing over debt to fund mergers and acquisitions, influenced by rising borrowing costs and potential credit-rating concerns. Market conditions have shifted: strong equity valuations, robust corporate earnings, and the narrow gap between equity and debt costs are making stock-based deals more appealing.
A standout case is Union Pacific’s $85 billion acquisition of Norfolk Southern, a mega-deal structured largely using stock, supplemented by cash, and with just $15–$20 billion in debt. This deal underscores a strategic pivot toward lighter debt reliance and greater financial flexibility.
Recent figures show 11% of M&A activity in 2025 is being financed purely with equity, while an additional 15.3% combines cash and stock. That contrasts with a declining trend in debt-funded acquisitions. Suppose this shift continues. In that case, debt issuance in capital markets could fall well below the nearly $1.5 trillion seen in 2024, according to industry analysts.
Experts suggest that this movement could significantly dampen volumes of new investment-grade bond issuance expected this year. Instead, corporates are protecting their credit profiles while leveraging high valuations in equity markets to execute growth strategies without overburdening their balance sheets.
Source
Based on reporting by Reuters.
