Mergers and acquisitions could kick into high gear under Trump

A second Donald Trump administration and lower interest rates could set the stage for a renaissance in the mergers and acquisitions market.

Under Trump, the financial services sector is preparing for potential tax cuts, less-strict oversight, fewer regulations, and a friendlier financing environment that could help release pent-up dealmaking demand.

“It’s, in some ways, the perfect storm,” said Mitch Berlin, vice chair of EY Americas’ strategy and transactions division. “The demand is there, the business drivers are there, the cost of capital is coming down, and the regulatory environment may be more friendly towards deal making. All those signs are pointing to an increase in M&A in 2025,” he said.

Goldman Sachs (GS+1.09%) estimates that M&A activity will rebound 20% in 2025, supported by economic and earnings-per-share growth, relatively loose financial conditions, and contained market volatility, the investment bank said in a research note. Such a boost would follow a 15% decline in M&A activity this year, according to Goldman.

For the last two years, the industry recorded one-third the deal volume of a typical M&A year, which sees between 70 and 80 deals worth $50 million or more, Wells Fargo’s (WFC+1.02%) Mike Mayo said in a note Wednesday. The last Trump administration mirrored historical trends, averaging 78 deals per year from 2017 to 2019, compared with 15 and 27 deals respectively in 2023 and in 2024 so far.

This has created a bottleneck of M&A activity, which Mayo said could fuel a “desire and ability” for there to be 100-plus deals per year for the next four years, under a president who has said deals are his “art form.”

Trump has long positioned himself as a slasher of red tape, and is widely expected to pare back antitrust scrutiny and other regulatory hurdles that have slowed some of the recent M&A activity in the U.S.

Last year, the Biden administration introduced new merger guidelines, which one legal expert has called “hostile” to mergers and acquisitions. In the past few years, the Department of Justice and Federal Trade Commission has blocked or sought to block a handful of major mergers, including proposed deals between low-cost airlines JetBlue (JBLU+3.08%) and Spirit (SAVE), and grocery chains Kroger (KR+0.65%) and Albertsons (ACI-0.10%).

Republican FTC Commissioner Melissa Holyoak said in a talk at George Mason University last month that she would “strongly consider rescinding or revising” the rules, arguing that the guidance “downplays the role of economics” when making decisions about mergers.

“The Trump administration seems to be more hands off when it comes to deal making, unless there is a threat [...] to the U.S. economy,” Berlin said.

That’s especially true when it comes to technology and manufacturing, he added. Overall, however, companies are preparing for faster and easier approval processes that will make them more willing to take a chance on bigger, higher-value deals.

Within the early days of Trump’s return to the Oval Office, several regulatory agencies could undergo leadership changes. FTC Chair Lina Khan, who has launched a high-profile antitrust crackdown that has made her largely unpopular in the corporate world, will likely be replaced or step down.

It’s worth noting that there were 118 DOJ and FTC challenges to mergers between 2017 and 2019, corresponding with the first three years of Trump’s first term, according to annual reports released by the agencies. That’s higher than the 108 challenges between 2021 and 2023, during Biden’s first three years in office.

The Federal Reserve’s interest rate-cutting campaign will lower the cost of capital, which will also help spur mergers, said Courtney Whang, partner and financial services expert at Quinn Emanuel.

“Many companies who sat on the sidelines while interest rates were high, may now be strategically planning to leverage lower borrowing costs to their advantage,” Whang said in an emailed statement.

The central bank has already lowered interest rates by 75 basis points this year, with another 25-basis-point reduction largely expected in December. Rates are currently set at between 4.50% and 4.75%.

These lower borrowing costs could create a more friendly financing environment, which could encourage companies that have been weighing a merger to finally take the plunge, EY said in its October merger report.

Wall Street is now forecasting a neutral or “terminal” federal funds rate of around 3.25%-3.5%, which, although still above pre-pandemic levels, could make lending cheaper.

There have already been some early signs of resurgence in M&A. The total value of large deals, worth $100 million or more, made in the third quarter rose 9% from the prior quarter to $366 billion, putting total deal value on track to exceed 2023 levels and return to pre-pandemic volume, EY data shows.

This has also been reflected in banks’ advisory revenues and investment banking divisions. At Goldman, the top M&A advisor by deal volume, debt underwriting revenues rose 46% year over year to $605 million in the third quarter.

Still, M&A volumes are 13% below 10-year averages, driven by the current regulatory environment and little consolidation among large-cap companies, particularly in the tech sector, Goldman chief executive officer David Solomon said on a call with analysts last month.

“But there’s no reason why we’re not going to get back to 10-year averages, and that’s a tailwind,” he said.

Morgan Stanley (MS-0.68%) CEO Ted Pick similarly told analysts in October that he is “bullish on ... M&A coming back.” The firm’s investment banking revenues rose to $1.5 billion for the quarter that ended on Sept. 30, more than half of which came from advisory activity for completed deals.

Two areas that have led the M&A market in recent years are technology and oil. With the rise of artificial intelligence, tech and non-tech companies alike have begun to acquire startups and competitors to help gain a competitive edge through AI capabilities, Berlin said. He also expects the oil and gas sector to see a pickup in activity, as the president-elect has promised to “drill, baby, drill” and boost oil production.

“Where there’s drilling there’s oil, where there’s oil there’s money and more appetite and more money to do deals,” Berlin said.