Larry Grafstein, Deputy Chair of Global Investment Banking at RBC, joins Mark Rushton, European co-head of M&A at RBC Capital Markets, to explore the dynamic M&A landscape leading to 2025. They discuss how lighter regulation may facilitate dealmaking in the U.S. while analyzing the impact of political changes on market sentiments. The duo highlights the resurgence of private equity and emerging trends in corporate activism, particularly how these factors shape M&A strategies in North America and Europe.
The anticipated regulatory changes under the new U.S. administration are expected to simplify M&A transactions and boost market confidence.
Rising private equity activity fueled by favorable financing and strategic acquisition interests highlights a robust outlook for key industries in 2025.
Deep dives
Current M&A Environment and Outlook
M&A volumes worldwide experienced a 15% increase through 2024, following a period of lower activity. Despite this uptick, average deal sizes have risen significantly, driven by a remarkable Q3 recovery after a slowdown in the first half of 2024. The impact of the recent U.S. elections has created a positive market sentiment, boosting expectations for a favorable deal-making environment moving into 2025. This renewed confidence is linked to the anticipation of lower corporate tax rates and a more business-friendly regulatory landscape.
Impact of Political Changes on Tariffs and Trade
Concerns about potential increased tariffs under the new Trump administration may pose significant risks, particularly for international partners like Canada. A possible rise in tariffs could severely impact the Canadian economy, which heavily relies on the U.S. as its largest trading partner. Conversely, a depreciating Canadian dollar could attract U.S. investors seeking cheaper assets, enhancing cross-border M&A activity. The conversation also highlights the broader implications of trade relations, particularly in light of uncertainties surrounding tariffs affecting Europe and China.
Regulatory Environment and Antitrust Considerations
The incoming Republican Congress is expected to create a more favorable regulatory environment for M&A activity, with less aggressive antitrust enforcement anticipated compared to the previous administration. This regulatory shift could encourage deal-making across various sectors, while different industries may still face scrutiny under antitrust laws. The focus may shift towards facilitating business growth, with less emphasis on the multifaceted evaluation of M&A proposals seen under the Biden administration. Overall, the change in leadership is expected to lighten the regulatory burden, sparking increased interest in acquisitions.
Private Equity Activity and Sector Trends
Private equity activity is on the rise, spurred by improved financing markets and increasing optimism among major firms. A record amount of 'dry powder' in the industry indicates that investors are keen to deploy capital as market conditions evolve. The healthcare, technology, and energy sectors are currently experiencing heightened M&A activity, reflecting ongoing industry consolidations and strategic acquisitions. Noteworthy examples include Blackstone's acquisition of data centers and other significant assets, suggesting a robust outlook for private equity moving forward.
Lighter regulation under the next U.S. administration may make dealmaking simpler, at least in some sectors, but how will M&A be affected by Trump’s other plans? In this episode of Strategic Alternatives, Ben Mandell, Global Head of M&A, is joined by RBC Capital Markets’ M&A experts from across the globe to analyze how the change of regime and other factors will influence transactions in 2025.
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