Wall Street gears up for M&A boom. These names could be attractive targets

Wall Street is cheering a potential revival of mergers and acquisitions when the new Trump administration takes office, and bankers and investors alike are already trying to find out what deals could be coming first. The combination of rate hikes from the Federal Reserve and an aggressive antitrust approach, embodied by Federal Trade Commission Chair Lina Khan, has made the past few years pretty slow for deal-making. Now that the election is over, and a change at the FTC seems highly likely, Wall Street is getting ready for a new era. “Being past the election has removed market uncertainty, first and foremost. Markets like certainty and you’re seeing that broadly across capital markets. … Over the medium to long term, there should be a further catalyst for IPOs, M & A and key sectors we invest in,” said Carlyle CEO Harvey Schwartz on a Nov. 7 earnings call . In the pipeline Trump’s win comes as the mergers business was already showing some signs of waking up. Deal announcements are up 25% year over year in 2024, according to Morgan Stanley, after a historically quiet 2023. The recent rate cuts by the Federal Reserve may be helping grease the wheels of the deal market, especially for transactions that involve debt. “As the interest rates decrease, we obviously see more of an alignment and less of a valuation gap between the sellers and the buyers, and the cost of capital is coming down as leverage continues to increase,” Stephanie McCann, a partner at law firm McDermott Will & Emery who works on private equity and smaller public deals, told CNBC. With the Fed having cut rates again in November and an expected switch to a more business-friendly regulatory environment in January, the size and scope of deals could start to expand in the coming months. Potential candidates One common motivation for a company to buy another is growth. A larger, more established company wants to show its investors that it is not out of ideas, and it may look to absorb a smaller, fast-growing company to do so. In that vein, Wolfe Research identified small and midcap companies with high projected growth rates. One of these, e.l.f. Beauty , recently made a big purchase of its own with a $355 million deal to acquire Naturium last year. Another name on the list might be more likely to seek a sale after some news this week. Hims & Hers fell more than 24% on Thursday after Amazon announced it would start offering similar health products to Prime members. A Goldman list of companies that were seen as strong candidates to have some M & A activity over the next 12 months included some bigger names, such as Electronic Arts and Zoom Video Communications . EA has been a commonly speculated acquisition target by a major tech or media company since Microsoft’s acquisition of Activision Blizzard , which closed in 2023. Bank consolidation could be another area to watch. Ed Mills, Washington policy analyst at Raymond James, said bank deals have been slower over the past few years than during the 2008 financial crisis, making the group ripe for a rebound. “In my opinion, bank M & A has reopened for every bank absent the globally systemically important banks,” Mills told CNBC. Related to the financial sector, shares of Capital One and Discover Financial Services both soared in the immediate aftermath of the election. The proposed merger of those two companies looked to potentially be on shaky ground if Democrats remained in power. DFS 1M mountain Shares of Discover Financial rallied sharply after the election of Donald Trump. Other candidates to keep an eye on are deals that fell apart due to regulatory pressure in recent years, such as Tapestry and Capri . The merger between those two companies was blocked by a judge and then dropped this past week , but both companies could be players moving forward. Spirit Airlines could also be on the table again after failed deals with Frontier and JetBlue. The struggling airline said last week that it was having ” constructive talks ” with creditors. Potential issues While Trump’s second term is expected to be more business friendly than President Joe Biden’s, the new administration’s approach to antitrust issues remains to be seen. Regulators did open investigations into major tech companies during the first Trump administration, and Matt Gaetz — Trump’s nominee for attorney general — appears to be headed for a contentious confirmation process. “I think there can be a degree of wishful thinking that it’s going to be some laissez-faire approach to antitrust regulation, and I think that is misguided. There’s still a populist tone in the Trump campaign … and enforcement, in my opinion, is not going to go away. I think it will just be a more measured, less aggressive enforcement span,” said Kyle Healy, a partner focused on M & A at law firm Alston & Bird. Another issue could be cost. The S & P 500 was already trading near record highs before the election, and the small-cap benchmark Russell 2000 is up 4.9% in November. That may make finding the right price for acquisition targets a bit tricky. “Prices are pretty high. At some point, that will be a major consideration,” Michael Lynton, chairman of Warner Music and Snap , said on CNBC’s ” Squawk on the Street ” on Nov. 6 when the postelection rally was just beginning.