U.S. Corporations Rethink M&A Strategy: Equity and Cash Take the Lead Over Debt

A growing number of large U.S. companies are changing how they fund major mergers and acquisitions, opting to use more equity and cash instead of piling on new debt. This marks a significant shift in deal-making strategy amid rising interest rates and greater scrutiny from credit rating agencies.

Union Pacific’s proposed $85 billion acquisition of Norfolk Southern is a prime example. Instead of taking on massive debt, the company plans to finance the deal primarily through stock and cash, using only around $15–20 billion in new borrowing. This approach reflects a broader move by investment-grade firms looking to maintain financial flexibility and avoid credit downgrades.

According to recent data from LSEG, equity-only deals now make up about 11% of U.S. M&A financing in 2025, while cash-and-stock combinations account for more than 15%. That’s more than double the levels seen just a year ago. This trend is already leading to a decline in new investment-grade bond issuance, which could fall below 2024’s $1.5 trillion total if the pattern holds through the second half of the year.

Market analysts note that companies are responding to multiple pressures. With borrowing costs still elevated and the risk of credit downgrades high, many firms are avoiding highly leveraged transactions. Credit agencies have already flagged Union Pacific’s debt portion as a concern, reinforcing the shift toward more conservative financing structures.

The shift also reflects confidence in equity markets. With stock prices strong and balance sheets healthy, firms are more willing to issue shares to finance acquisitions. This allows them to pursue large-scale deals without straining their debt profiles—an attractive proposition in today’s uncertain economic climate.

Bankers say this funding pivot could reshape the M&A landscape for the rest of 2025. Instead of debt-fueled buyouts, the market is likely to see more equity-driven transactions and hybrid deals that prioritize balance sheet strength. For investors, this could mean fewer new corporate bond offerings and a different mix of risk in upcoming deal flows.

As corporate America adapts to a new rate environment, capital structure decisions are becoming as strategic as the deals themselves. Equity and cash are now more than just options—they’re becoming the preferred currency of corporate consolidation.