WSJ What’s News - A New Trump Administration Brings Optimism for M&A: What to Watch

Episode Date: December 22, 2024

The last couple of years have seen fewer mergers-and-acquisitions deals targeting U.S. companies, but a new presidential administration is bringing optimism for a pickup in M&A activity. WSJ’s Ben Dummett explains how a change in political leadership could pave the way for a reset of antitrust policies, what sectors might see more deals and what those deals might look like. Charlotte Gartenberg hosts. Further Reading As Trump Readies a Reset of Antitrust Policy, Look to These Sectors for Deals  Trump Aims to Remake Federal Trade Commission With Two Picks  Why Goldman Stands Out as a Trump-Era Winner on Wall Street  Learn more about your ad choices. Visit megaphone.fm/adchoices

Imagine this, a workforce so adaptable, it can pivot whenever your business pivots. And a supply chain that can handle the pressure. That's the revolutionary power of SAP Business AI. And that's just the beginning. Revolutionary technology, real world results. Hey, What's News listeners. It's Sunday, December 22nd. I'm Charlotte Gartenberg for The Wall Street Journal. This is What's New Sunday,

the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. This week, president-elect Trump's coming term might bring fairer wins for mergers and acquisitions. We look at how and who might stand to benefit. Let's get to it.

2023 had the lowest number of M&A deals targeting U.S. companies since 2015. And this year is likely to have an even smaller number of transactions announced, according to data from Dealogic. There's no single reason, but many attribute recent choppy waters and dealmaking to regulatory scrutiny from the Federal Trade Commission. Donald Trump's presidential victory could signal smoother sailing for M&A. And the optimism's already showing. The day after the election, banks like JP Morgan Chase, Goldman Sachs, and Morgan Stanley saw their biggest single-day gains in four years.

Mega-cap tech companies also saw some big upticks that day. Here to walk us through what we might see in mergers and acquisitions in the coming year is reporter Ben Dummett, who writes about deal making from the Wall Street Journal's London Bureau. First off, Ben, when's the optimism? Trump himself is a big reason and he's advocated pro-business relatively like touch regulatory regime. One of the big obstacles or M&A, particularly big M&A, under the Biden administration has been the FTC, which is headed by Lena Kahn,

who's taken an unusually aggressive stance to big deals. Trump and the Republicans, they've already announced they will remove Lena Kahn. They're expected to dismantle some of the obstacles that Kahn put in place to obstruct mergers including new guidelines that spelled out which deals the FTC and Just Department would challenge. Furthermore, the macro backdrop is good, particularly in the U.S.

The equity markets are on fire. They're near or at record highs. The economy is doing well. Interest rates are coming down. Lower the interest rate, lower the cost of debt in order to finance deals. Similarly, in the case of high stock markets, stock prices are important as well because the higher stock prices, the easier it is to use your shares as a currency to buy companies as well. Let's talk about some of the president-elect's appointees,

particularly his Federal Trade Commission chair, Andrew Ferguson. What are we expecting from Ferguson? Well, by reputation, he's considered more deal-friendly than Kahn and has dissented from some of the FTC's enforcement actions. That includes, for example, criticizing an FTC settlement, which the CEO of Hess, a big US energy company, from joining the board of Chevron once those companies complete their mega $53 billion tie-up. That said, the tech sector is a different issue. Like Kahn, he's expected to keep

big tech deals in check, albeit for different reasons. I mean, Kahn, he's expected to keep big tech deals in check, albeit for different reasons. I mean, Kahn was motivated by the desire to prevent companies gaining monopolistic power at the expense of consumers and competitors. Ferguson will likely be more driven in his potential opposition to propose big tech deals by the concern that the industry is using their platforms to stifle free political expression. What about Gail Slater heading the Justice Department's Antitrust Division? How will her background maybe weigh on some of this?

The FTC and the Department of Justice share antitrust authority. So it stands to reason that Slater's appointment on the whole is another positive for deal-making because of her already close relationship with Trump. She worked on the National Economic Council during the first Trump administration. The general view about Trump and his approach to governing is unlike last time he is going to make sure that the people he surrounds himself with are on board with what Trump wants to do. That's another reason to think that Slater won't stand in the way of M&A to the extent it fits with Trump's overall agenda. Right. But how much headwind can come from Republicans, more populous Republicans, who

have taken a more skeptical view of corporate power, and JD Vance is among those Republicans. Yeah, no, that's a good point. I mean, it's true. And so the proof of belief in the pudding, like, for example, if we take pharma, will there be a lot of pharma deals? Historically, pharma has a track record of big M&A, but Trump is a populist and other Republican populists, I mean they're obviously going to fight deals where they, for example, they see big pharma coming together and that risk raising drug prices. Deals that somehow jeopardize union power, for example, look at the Nippon US Steel deal. Now that hasn't been

blocked yet, but Trump has said he'll block it. He's there to protect steelmaking jobs in the US. That's a good example of where we could see him pivoting against deals. You know, the real test will be, regardless of the industry, whether or not a deal jeopardizes political goodwill among his base, which is to a large degree populist. Well, from the political end, we're looking at slightly smoother roads ahead. Coming up, as a change in political leadership paves the way for a reset of antitrust policies. What sectors might see more deals and what exactly might those deals look like? That's after the break. spiraling, upgrade to Oracle Cloud Infrastructure, or OCI. OCI is the blazing fast and secure platform

for your infrastructure, database, application development, and AI workloads. Right now, Oracle is offering to cut your current cloud bill in half if you move to OCI. For new US customers with minimum financial commitment, offer ends $12.3124. See if your company qualifies at oracle.com slash Wall Street. All right, Ben, we're going to take a look at some potential deals. Who might buy whom, who might merge, and what is motivating these moves?

What are the sectors you're watching right now or soon? Well, one sector that's supposed to be particularly active is the regional bank sector in the U.S. That's largely driven by, again, expectations that Trump is going to loosen financial regulation. And at the same time, these banks, there's so many of them in the US, that they're under increased pressure to get bigger, you know, gain scale if they want to compete with the mega banks like the JP Morgan's. If we look at the Omnicom IPG deal, which was worth 13 plus billion, those are two traditional advertising agencies that are joining forces in order to take on the ghouls of the world that are

emerging into that space and making it much more competitive. That's another area where there could be more M&A. Traditional advertising companies are facing increased competition from Facebook, from Google, etc. They need to be able to adopt more technology in the way they compete. Another sector where we've actually seen a lot of big deals happen is oil and gas. As a result of that, and because valuations in the alternative energy space have suffered

as energy security and the need for fossil fuels have become more important in the wake of things like the Ukraine War, you could see consolidation by extension in the alternative energy space as they try to shore up their position. So that was regional banks, you're looking at advertisers and possibly energy. Are there any trends in who's buying whom? On the strategic front, it's strategic are driven either because they're on the offense

and they want to grow either within their market or they're using acquisitions to expand into different geographies or to get access to different customers. You can expect to see, you know, bigger deals and more, potentially more cross border deals. You know, for example, Europe in the U.S. or U.S. into Europe or US into Asia,

those deals are typically considered more risky, but they also offer the opportunity to expand geographically, get access to new customers, get access to new technologies. The other thing on for strategic is they do it for defensive moves. Again, I know I'm harping back to it, but it's the most obvious example these days where you've got someone like Omnicom doing this big deal with IPG. That's a defensive move to try and maintain their competitiveness against these tech competitors that are emerging. What about private equity? For example, earlier this month, Walgreen was in talks to sell itself to PE firms like more partners. In the case of PE, there's an expectation that PE will become more active. Private equity,

they raise funds in order to buy companies. But there's also pressure on them to sell these companies after four, five, six years and reap the returns that they expected to get from those investments. And what we've seen in the last couple of years, number one, they've slowed the activity of buying companies because interest rates made them too expensive. And number two, they've struggled to actually sell assets. So there is

growing pressure on PE to do more deals and do bigger deals, which some people expect that to happen because interest rates have come down and therefore deals are less expensive to fund. So there is an expectation, yeah, that the activity among private equity firms will increase. Gotcha. In terms of trends, I was sort of expecting with LineCon leaving, maybe tech. We were going to see more M&A in tech. But what deals might we see coming out of that sector or am I reading the room wrong? Tech is historically a very active M&A market, mainly because we've lived in this world as becoming much more and more digital.

That said, one of the big areas, interesting areas, where there could be activity this year is in the semiconductor industry, particularly Intel, which at one point was the chip company that led all others. You know, it's Sint been supplanted by the likes of Nvidia, etc. Intel actually, they're in a turn-on mode right now. They're strapped for cash, and so they've actually indicated that they plan to sell a stake in what's called their Altera programmable chip unit.

It's also probably going to sell a stake in its self called their Altera Gramable Chip Unit, it's also probably going to sell a stake in its self-driving technology company called Mobileye. But that said, if this turnaround effort doesn't come to pass, then Intel itself could be a takeover target. All right, Ben, before we go, we've talked about a lot of potential M&A. Are there any other sectors you're looking at that might benefit or not benefit as knock-on effects of all this? One of the big beneficiaries for Trump's election in anticipation of a sort of more M&A activity

and capital markets activity more generally are the investment banks, right? Those stock prices you mentioned Goldman Sachs, for example, earlier, but also the boutique firms like investment banking firms like Evercore. Those stocks have taken off in the wake of the election, and that's all a bet on increased M&A activity, which boosts the fees these banks generate from advising companies on deals. By extension, the stock price of those companies could be an interesting bellwether to follow in terms of figuring out whether or not Trump is fulfilling his promises. Because if those stock prices come off, that's probably a good sign that the market is less confident of an M&A boom. I've been speaking with reporter Ben Dummett. Ben, thanks so much for your time.

Thanks for having me, I really appreciate it. And that's it for What's New Sunday for December 22nd. Today's show was produced by me, Charlotte Gartenberg, with supervising producer Michael Kosmides. We got help from deputy editors Scott Saloay and Chris Zinsley. I'm Charlotte Gartenberg. We'll be back on Monday morning with a new show. Thanks for listening.

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