Image Source: Nick Youngson CC BY-SA 3.0 Alpha Stock Images

Mergers and acquisitions bounced back in 2024 after two terrible years, and it looks like the positive momentum will continue in 2025.

Already, in the first two weeks of the year, there was a blockbuster deal announced in the energy space, with Constellation buying Calpine. It is one of the largest energy sector deals ever.

Also, last week, department store JC Penney and its affiliates announced a merger with SPARC Group. SPARC owns Aéropostale, Brooks Brothers, Eddie Bauer, Forever 21, Lucky Brand, and Nautica.

The volume of deals rose 9% in North America, 10% in Europe, and 3% in Asia in 2024, according to M&A law firm Morrison Foerster.

In 2025, some experts say deal volume could rise 15% to 20%, due to pent up demand, lower interest rates and inflation, and expected deregulation and tax cuts, among other factors. Ernst & Young projects 8% to 11% growth in volume this year.

“With nearly US$3 trillion in dry powder, we expect 2025 to bring significant capital deployment – both financial and strategic – as players seek to proactively and reactively transform to meet changing market conditions,” Liz Claydon, global head of deal advisory and Javier Rodriguez, global head of strategy, KPMG International, said.

Pure play dealmakers should outperform the giants

These trends spell good news for investment banks that focus on M&A, particularly the pure play firms that focus primarily on investment banking.

We’ll learn more about the major players, like JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Bank of America when they report Q4 earnings this week. But the stocks that investors may want to focus on are the smaller niche players.

As they make a higher percentage of their total revenue through M&A and investment banking, a surge in dealmaking will provide a bigger boost than it would for the more diversified financial giants.

Of course, on the flip side, they may be more volatile as their revenue is mostly tied to investment banking. But for the market that we’re heading into in 2025, these stocks could be a good play.

Four investment banking stocks to watch

All four of these stocks are projected to return more than 25% in 2025. Further, all have reasonable valuations coming off strong year.

One of the top choices for 2025 is Jefferies (NYSE: JEF), which just posted earnings last week and had blowout results. Jefferies saw earnings spike 214% and revenue increase 63% in the fourth quarter, with investment banking revenue rising 73%. CEO Richard Handler and President Brian Friedman said, “Jefferies begins 2025 in the best position ever in our firm’s 62-year history.” Jefferies has a median price target of $88, which would suggest a 26% gain over its current $70 per share price. It has a P/E ratio of 24 and a forward P/E of 16.

Another is Evercore (NYSE: EVR), which releases earnings on January 29. In its most recent quarter, it saw revenue climb 29% and earnings jump 50%. Evercore has a median price target of $322 per share, which is 25% higher than its current price. It has a P/E ratio of 33 and a forward P/E of 18. “We believe we are in the midst of a gradual recovery, with strong activity levels across nearly all of our businesses, and that Evercore is positioned for success as the market continues to improve,” John Weinberg, chairman and CEO, said.

A third stock to keep an eye on is Piper Sandler (NYSE: PIPR). Piper Sandler has gained 68% over the past 12 months, with a P/E ratio of 30. Wall Street analysts have set a median price target of $365 per share, which would suggest 29% growth over the next year. In the most recent quarter, Piper Sandler grew revenue 24% and net income some 800%, following a net loss in Q3 of 2023. Piper Sandler reports Q4 earnings on February 9, so look for more color then.

Finally, investors should also consider Perella Weinberg Partners (Nasdaq: PWP). Perella Weinberg stock has soared 103% over the past year and is trading at just $22 per share with a price-to-sales ratio of 1.5. Perella Weinberg had a record quarter in Q3, with revenue up 100%, and through the first nine months of 2024 revenue climbed 50%. It also had net income of $36 million in Q3, after a net loss of $24 million the same quarter a year ago. Analysts see more growth ahead, setting a median price target of $28 per share, which would be a 25% increase. It reports earnings on February 13.

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