WSJ What’s News Podcast Summary
Episode: A New Trump Administration Brings Optimism for M&A: What to Watch
Release Date: December 22, 2024
Host: Charlotte Gartenberg
Guest: Ben Dummett, Deal-Making Reporter, Wall Street Journal’s London Bureau
Introduction
In the December 22nd episode of What’s News Sunday, hosted by Charlotte Gartenberg, the focus centers on the potential resurgence of mergers and acquisitions (M&A) activity under the incoming Trump administration. The episode delves into the factors contributing to a subdued M&A landscape in 2023 and explores the optimism surrounding a pro-business regulatory shift with Trump's presidency.
Current State of M&A
Charlotte begins by highlighting the downturn in M&A activity:
"2023 had the lowest number of M and a deals targeting US companies since 2015, and this year is likely to have an even smaller number of transactions announced," (00:39) Gartenberg notes, referencing deallogic data.
Ben Dummett attributes this decline to multiple factors, with regulatory scrutiny from the Federal Trade Commission (FTC) being a significant impediment.
Impact of Trump's Administration
The conversation pivots to the anticipated changes under President-elect Trump:
"Trump himself is a big reason and he's advocated pro business, relatively light touch regulatory regime," (01:55) Dummett explains. He emphasizes that Trump's administration aims to reduce hurdles for M&A by potentially dismantling the aggressive regulatory frameworks established under the Biden administration.
Key positive indicators include:
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Strong Macro Environment: U.S. equity markets are nearing record highs, facilitating deal financing through lower interest rates and higher stock valuations.
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Financial Sector Optimism: The day following Trump's election saw significant gains in major banks like JPMorgan Chase, Goldman Sachs, and Morgan Stanley, signaling market confidence in a forthcoming M&A boom.
Key Appointees and Their Influence
Charlotte probes into the impact of Trump's FTC and DOJ appointees:
Andrew Ferguson, FTC Chair
"By reputation, he's considered more deal friendly than Khan and has dissented from some of the FTC's enforcement actions," (03:12) Dummett remarks. Ferguson is expected to relax the stringent guidelines that previously hindered large mergers, particularly in sectors like energy.
However, Ferguson's stance on the tech sector remains cautious:
"He's expected to keep big tech deals in check, albeit for different reasons," (04:09) says Dummett. Unlike Lina Khan’s focus on preventing monopolistic dominance, Ferguson may scrutinize tech mergers for their impact on political expression and platform control.
Gail Slater, DOJ's Antitrust Division
"Slater's appointment on the whole is another positive for dealmaking because of her already close relationship with Trump," (04:17) Dummett adds. With her background in the National Economic Council, Slater is anticipated to align DOJ’s antitrust policies closely with Trump’s pro-business agenda, further easing M&A activities.
Potential Headwinds from Populist Republicans
Despite the optimistic outlook, Charlotte raises concerns about internal pressures within the Republican Party:
"If a deal jeopardizes political goodwill among his base, which is to a large degree populist," (05:12) Dummett explains, indicating that populist sentiments may still pose challenges. For instance, Trump has expressed intent to block deals like the Nippon US Steel acquisition to protect domestic jobs, showcasing a willingness to oppose mergers that conflict with populist priorities.
Potential Sectors for Increased M&A Activity
Ben identifies several sectors poised for heightened M&A activity:
Regional Banking
Driven by expectations of loosened financial regulations and the necessity for scale to compete with major banks like JPMorgan Chase.
Advertising
The merger of Omnicom and IPG for over $13 billion exemplifies traditional advertising agencies' need to consolidate and integrate advanced technologies to compete against digital giants like Facebook and Google.
Energy and Alternative Energy
With the sustained importance of energy security post-Ukraine war, traditional oil and gas companies may continue to consolidate, while alternative energy firms seek to strengthen their market positions amid fluctuating valuations.
Trends in Buyers and Deal Motivations
Strategic Buyers
Dummett outlines that strategic acquisitions are motivated by both offensive and defensive strategies:
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Offensive: Expanding market presence, entering new geographies, or acquiring new technologies.
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Defensive: Strengthening competitiveness against emerging tech rivals, as seen with Omnicom's merger to better compete in the evolving advertising landscape.
These strategies may also lead to more cross-border deals, offering expanded access but introducing higher risks.
Private Equity
Private equity (PE) firms are expected to become more active due to:
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Lower Financing Costs: Reduced interest rates make funding acquisitions more affordable.
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Increased Pressure to Exit: After struggling to sell assets in recent years, PE firms face mounting pressure to pursue larger and more numerous deals to achieve their return targets.
An example highlighted is Walgreens' recent talks to sell to Sycamore Partners, illustrating the renewed interest and activity within the PE sector.
Tech Sector Outlook
Contrary to expectations that reduced regulatory scrutiny would spur tech M&A, the sector presents a nuanced picture:
"Tech is historically a very active M and A market," (11:16) Dummett states, noting the increasing digitalization driving mergers.
However, specific areas like semiconductors are under scrutiny:
- Intel's Turnaround: Struggling to regain its market lead, Intel may sell stakes in its chip and self-driving technology units or become a takeover target if recovery falters.
Conclusion and Market Implications
Ben identifies investment banks as primary beneficiaries of an anticipated M&A boom:
"Those are a bet on increased M and A activity, which boosts the fees these banks generate from advising companies on deals," (12:27) he explains. The stock performance of major and boutique investment banks could serve as indicators of the market’s confidence in the Trump administration’s ability to stimulate M&A activity.
Charlotte wraps up by emphasizing the potential transformative impact of Trump’s policies on the M&A landscape, suggesting that stakeholders should closely monitor regulatory changes and sector-specific developments to capitalize on emerging opportunities.
Notable Quotes:
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Ben Dummett:
- "[...] Trump himself is a big reason and he's advocated pro business, relatively light touch regulatory regime." (01:55)
- "He's expected to keep big tech deals in check, albeit for different reasons." (04:09)
- "Those [investment banks] stocks have taken off in the wake of the election and that's all a bet on increased M and A activity." (12:27)
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Charlotte Gartenberg:
This comprehensive summary encapsulates the key discussions from the episode, providing insights into how the new Trump administration could potentially reshape the M&A landscape across various sectors, influenced by regulatory changes and market dynamics.