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Finley Sutcliffe

The M&A Resurgence

With corporate deals still below pre-pandemic levels, and the current economic and political environment in the US, Wall Street analysts are optimistic about a potential bounce back under President-elect Trump’s administration. Falling Federal Reserve interest rates and anticipated relaxation on regulations may create ideal conditions for a resurgence in mergers and acquisitions.

Source: Federal Open Market Committee


The current downward trend on annual inflation rates has sparked a consensus that the Federal Reserve will be looking to decrease rates by 0.25% in December. The Federal Reserve appears to be hesitant towards more aggressive cuts as chair Jerome Powell said, "the economy is not sending any signals that we need to be in a hurry to lower rates". Trump's proposed tariff policies have introduced additional uncertainty regarding price levels and interest rate cuts. Despite this, the general outlook anticipates a gradual decline to around 2.5% by the end of 2026. This trend is likely to have a significant impact on private equity firms, which rely heavily on debt to finance acquisitions. With borrowing costs expected to fall, leveraged buyouts may become more appealing, driving up valuations.


The macroeconomic environment coupled with the Republican-led Senate and Congress makes deregulatory policies in financial markets more likely. Donald Trump’s nomination for Treasury secretary, Scott Bessent, has also expressed a similar sentiment for deregulation of banking. In an interview with Steve Bannon, an American political strategist, he mentioned his outlook for a “big push in bank deregulation”. As a prominent Wall Street figure with extensive experience as a hedge fund manager, the administration is expected to advocate for some degree of banking deregulation. Such measures could energise dealmakers by reducing the regulatory uncertainty that often complicates corporate mergers and acquisitions. Easier access to capital and streamlined approval processes could see M&A activity accelerating.

 

Given Trump’s stance on corporate taxation, his proposed tax reforms may further incentivise M&A activity by increasing after-tax cash flows for corporations, providing them with greater resources for strategic acquisitions. The President-elect’s plans to extend the Tax Cuts and Jobs Act of 2017, which reduced corporate tax rates from 35% to 21%, include further reductions to 15% for companies manufacturing domestically. This targeted tax policy aims to boost domestic production, potentially driving sector-specific M&A, particularly in manufacturing and industrials. These reforms, combined with a favourable regulatory and economic environment, position the US as a hotspot for dealmaking activity.


Goldman Sachs’ research on corporate spending predicts that of the estimated $4 trillion in corporate spending, half is set to be allocated for growth investment in M&A, R&D, and capital expenditure, with the remainder assigned for dividends and buybacks. While the conditions appear favourable, challenges such as geopolitical uncertainties and delays in implementing deregulatory measures could temper the optimism surrounding M&A activity. Overall, the combination of economic, political, and regulatory factors presents a promising environment for M&A activity. With anticipated deregulation and the gradual reduction of interest rates, corporate leaders may seize the opportunity to pursue transformative deals, ushering in a new wave of business combinations.

 

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