Mega deals won’t lead M&A rebound under Trump

US BANKERS are rubbing their hands at an expected boom in dealmaking under a market-friendly president-elect Donald Trump next year. But scratch the surface, and it is apparent that the mergers and acquisitions to come are far more likely to be among smaller companies. Mega deals will not lead the way.

Denis Coleman, the chief financial officer of Goldman Sachs, summed up the optimism on Bloomberg TV last week. He expects the coming change of leadership at the Federal Trade Commission (FTC), one key antitrust regulator, to remove some of the headwinds to takeovers and help improve “CEO confidence and unlock more investment, more activity and provide a more favourable strategic backdrop”.

However, Trump’s populist brand of Republicanism retains a strong dislike of the power of big companies, embodied by his vice-president-elect JD Vance.

The incoming administration’s pick to replace the staunchly progressive Lina Khan in running the FTC is a Republican lawyer called Andrew Ferguson, who joined the agency in April. His work suggests he is no friend of Big Tech, with his initial moves including a call for an investigation into censorship and bans of some users on social networks.

The antitrust division of the Justice Department (DOJ), meanwhile, is set to be led by Vance’s former economic policy adviser, Gail Slater, suggesting it, too, will maintain a tough line on corporate monopoly power.

“Mega transactions might not happen because of concerns around antitrust scrutiny, but smaller deals should be much easier to do than in recent years,” Nestor Paz Galindo, head of global banking for Europe, the Middle East and Africa at UBS, told me recently. “Pharma, Big Tech, banking, that’s where the most scrutiny has been and will likely remain.”

Over the past three years, the share of global deals worth more than US$10 billion has been relatively low by historic standards, at less than 20 per cent of volume in many quarters, according to data compiled by UBS, while transactions in the US$2 billion to US$10 billion range have been more than 30 per cent in several quarters. That trend is set to continue.

Legal battles over deals in the US have also become more common, which can mean delays in closing transactions and extra costs – and that could deter CEOs. “Courts have been taking a bigger role in deciding the outcome of contested deals, which can take more time, and that is likely to remain,” according to Richard Casavechia, UBS’ head of global banking in the US.

Under Joe Biden’s presidency, the FTC and DOJ blocked a string of deals and pursued investigations against the existing powers of big companies with antitrust court cases, particularly in technology. Bankers say that activist stance put a chilling effect on proposals for deals that large companies might otherwise have tried to do, and helped scupper some that they did attempt, such as Alphabet’s offers for Wiz and HubSpot.

Smaller deals, though, may flourish. Regional banking, for example, is one area ripe for consolidation after the damage done by high interest rates and the deposit flight to big banks during 2023. Many of America’s more than 4,000 smaller lenders need to scale up so that they can appear sturdier, attract more deposits and afford the technology investment needed to modernise their services and run more efficiently.

Deals are most likely among banks below the threshold of US$100 billion in assets, at which stricter regulation, capital and liquidity requirements kick in. New York Community Bancorp, now renamed Flagstar Financial, came close to collapse in early 2024 because of the tougher oversight of its balance sheet that came with leaping into the big league after two quick acquisitions boosted its assets.

Bob Diamond, the former CEO of Barclays, has a venture focused on US banking consolidation, and reckons there will be a host of deals among banks with US$50 billion of assets and below.

Those banks can gain scale but not break that US$100 billion barrier. Over the next few years, dealmaking will shrink the roughly 4,500 banks in the US down to just 1,000 to 2,000 lenders, he said at a recent Financial Times banking conference.

Deals among larger regional firms could be possible, too – and would likely benefit Americans by providing better competition with the biggest lenders such as JPMorgan Chase and Bank of America.

In banking and elsewhere, while the activism of US antitrust regulators might not disappear entirely, it is likely to become friendlier to companies that are not yet giants. Investment bankers have good reasons for optimism – but their bonuses will more likely come from an accumulation of smaller deals than from single outsized paydays. BLOOMBERG