Various factors predict that in 2025 the business of mergers and acquisitions (M&A) will have a greater role that some risk could have the edge of a boom. The fact is that the Fed’s interest rate cut implies a reduction in financing costs that encourages companies and venture capital funds to finance these businesses. On the other hand, the economic deregulation process announced by the president-elect donald trump entails a more favorable environment for the private sector, and in particular for M&A.
Added to these two factors is the fact of a postponed or accumulated demand from the pre-electoral uncertainty in the US that implied a drop in M&A operations last October to US$96,000 million compared to US$260,000 million a year agoaccording to data from Ernst & Young. It is worth noting that in the first three quarters of 2024, the value of M&A in the US increased 5% year-on-year to US$1.32 trillion, reflecting strong underlying momentum. Hence the greater optimism among “venture capital” who project strong growth in business precisely with the promise of reduction of regulatory and normative obstacles. The only issue that could conspire with this outlook would be the inflationary impact of the import tariffs that Trump threatens to impose, which would make the Fed cautious about continuing with rate cuts.
Mergers and acquisitions: what happened in 2024?
A look at the operations carried out throughout the year shows that The most active sectors in mergers and acquisitions have been technology, energy and healthcaredriven by digital transformation, energy transitions and new health needs; of course The financial and real estate sectors also registered strong activity, due to private capital investment and the recovery of consumer demand..
In the case of the technology sector The trigger is advances in Artificial Intelligence (AI) and robotics where companies seek to integrate emerging solutions and talent, while in the energy sector the impulse came from decarbonization initiatives and the evolution towards renewable energies. On the other hand, in the health sector, the increase in demand for innovative treatments and technologies explains the increased operations. There were also important transactions in the consumer sector such as Mars’ bid for Kellanova and Couche-Tard’s acquisition of Seven & i Holdings. In terms of geographic scale, North America and Europe were the regions that concentrated the largest M&A, with the United Kingdom and some European markets standing out.
The Trump 2.0 effect
Why is there speculation that Trump’s return to the presidency implies a change of rules in the economic-financial game, because, according to the Republican leader, this second administration would create a favorable environment for M&A by combining lower interest rates , and business-friendly policies such as tax cuts, less regulation, and less oversight. According to experts, these measures could reduce the cost of capital, making it easier for companies and venture capital to finance M&A and releasing pent-up demand for operations; besides Pro-market policy could reduce regulatory obstacles, particularly for large-scale mergers, which would increase the confidence of participants in these transactions.
For example, Goldman Sachs forecasts a 20% increase in M&A activity in 2025 after several periods of low activity that left a bottleneck of unexecuted operations. For its part, Wells Fargo estimates the order book could generate more than 100 transactions a year over the next four yearswhich would exceed historical averages. Those who highlight Trump’s personality believe that his eagerness to negotiate and reach agreements would lead to a revival of market concentration.
Of course, this scenario could conspire against the organic growth of companies, betting more on external growth to the detriment, for example, of investment in research and development (R&D), something that was boosted by the pandemic. Recent historical experience shows that during periods of economic depression, R&D expenditures tend not to fall in line with sales, therefore, the increase in M&A would be driven more by opportunities and adequate financing conditions. than by the search for growth through acquisitions.
M&A: how to participate in this business?
The current market offers several ways to invest in the subject of M&A, either by detecting a candidate or entering via ETF funds. In this regard, a list by categories put together by the chief economist of the Mirabaud group, John Plassard, illustrates the possibilities:
- IQ Merger Arbitrage ETF: This fund is designed to pursue a merger arbitrage strategy, investing in companies that are targets of announced M&A transactions. The goal is to capture the difference between the target’s current share price and the price offered by the acquirer.
- ProShares Merger ETF: This fund also adopts an arbitrage strategy by investing in companies that are the subject of a takeover bid. The focus is on transactions that have already been announced to reduce uncertainty.
- Invesco Global Listed Private Equity ETF: This fund focuses on venture capital firms involved in mergers and acquisitions.
- VanEck BDC Income ETF: This fund invests in business development companies (BDCs) that finance mergers and acquisitions.
In summary, the probable increase in M&A transactions is very good news for the markets, since it reflects the return of confidence of investors and companies, and in this regard it is worth remembering that, historically, these are the companies with high valuations those who are most likely to be active during this period, to which is added the Trump 2.0 effect.
Source: Ambito
