Corporate mergers and acquisitions, like the economy, rely on perceptions – Semafor
Speaking with CEOs and dealmakers, one can sense a renewed sense of enthusiasm in the business world. Stocks are reaching all-time highs, and the expectation of deregulation under President Trump has companies considering mergers that would have been unlikely under a Biden administration.
Raphael Bejarano from Jefferies expressed how, just a few years ago, proposing transformative deals in Fortune 500 boardrooms was met with skepticism due to uncertainties like rate cycles, antitrust reviews, and possible recessions. However, with the current political climate, these barriers seem to have vanished. Despite this optimism, data from Dealogic reveals that the total value of deals announced in the US this year is actually lower than the first two weeks of 2024.
Although the desire for mergers is apparent, challenges still remain. Borrowing costs remain high, as indicated by the Federal Reserve’s recent meeting minutes, which suggest that rate cuts are unlikely. Furthermore, Trump’s tariffs and immigration policies could negatively impact corporate earnings and result in labor shortages. Krishna Veeraraghavan of Paul Weiss highlights that tariffs could either encourage or hinder deals, with some companies looking to acquire global vendors to secure their supply chains.
Corporate development teams are eager to revisit M&A strategies after three challenging years. However, the historical underperformance of acquirers when compared to non-buyers, as shown by WTW data, raises concerns about deal effectiveness. Additionally, despite hopes for lighter antitrust regulations, past actions by the Trump administration, like blocking AT&T’s takeover of Time Warner, may indicate otherwise. Vice President-elect JD Vance has been critical of corporate consolidation.
The potential merger of Getty and Shutterstock worth $3.7 billion is reminiscent of the failed merger between Penguin Random House and Simon & Schuster, blocked by the Biden administration due to concerns about diminishing competition among publishers. Ethan Klingsberg from Freshfields anticipates that although private equity M&A activities may not surge, some large companies may take the leap and engage in exciting mergers.
In conclusion, the business landscape is evolving with the changing political climate. As CEOs and dealmakers tread cautiously amidst uncertainties, the prospect of successful mergers remains both enticing and challenging. Despite the anticipation of relaxed regulations, past experiences and ongoing economic challenges serve as reminders to approach dealmaking with caution and strategic planning.
