(Bloomberg) — Mergers and acquisitions bankers are hopeful that Donald Trump’s return to the White House will help bring even more new deals than previously anticipated. Debt underwriters could win too.
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Trump is expected to nominate a new chair of the US Federal Trade Commission to replace Lina Khan, who has blocked a series of acquisitions on antitrust grounds. Her successor will probably be more friendly toward big combinations.
Many of those are likely to be debt-funded. In addition, Trump’s business-friendly stance, such as likely lowering corporate taxes, could add to tailwinds already supporting the return of private equity leveraged buyouts.
Meanwhile borrowing costs are falling in public and private loan markets alongside the Fed’s interest-rate cuts.
“You’ve got syndicated and direct markets that are desperate for deals,” said Rob Fullerton, global head of leveraged finance at Jefferies Financial Group Inc. “You’ve also got tremendous liquidity in both the loan and bond market.”
The economic environment was already positive going into next year thanks to improving unemployment and inflation levels, Fullerton said. “Now with the new administration, the market is expecting a more business-friendly regulatory environment,” he added. “This will be good for M&A.”
There are still obstacles to getting deals done, though. Valuations of possible targets are high: equity markets surged following Trump’s win. Buyers typically don’t want to pay the top price for a company.
Financing is also getting more expensive in bond markets. A selloff in the Treasury market after Trump’s win pushed yields to their highest level in months. The returning US president is expected to back policies such as import tariffs that can fuel more inflation. Economists across Wall Street have dialed back their expectations for US interest rate cuts.
“There has been a hope for a long time now that there would be more LBO sponsor acquisition activity,” said Trip Morris, co-head of leveraged finance at Wells Fargo & Co. “But I don’t know that the fundamental challenges around the buying and selling of companies is in that different of a place.”
Leveraged buyout activity has already been improving in 2024 from last year. Private equity firms have announced at least $94 billion in takeovers of publicly-traded US companies this year, up 63% from the same period in 2023, according to data compiled by Bloomberg.
There is pent-up demand among private equity firms to do deals. Sponsors need to put their dry powder to work by buying companies, and they’re also under pressure to sell companies to return capital to investors. Meanwhile, competition between the broadly-syndicated debt markets and direct lenders is driving down borrowing costs.
Risk premiums, or spreads, have been growing tighter in both the high-yield and investment-grade bond markets, making borrowing a little cheaper than it might have been otherwise.
Investors’ demand for debt has helped unleash a wave of refinancing in leveraged loans, pushing issuance for the year above $1 trillion, a record figure.
Trump’s victory may convince companies that had been sitting on the sidelines until after the election to move forward, now that it appears there will be less antitrust pressure. Qualcomm Inc., for example, decided to wait until after the November election to decide whether to pursue an offer to buy Intel Corp., as Bloomberg News reported last month.
Private equity firms could also benefit from a more pro-Wall Street, lighter regulatory environment.
But it’s still too early to know the full implications of Trump’s presidency. The market is waiting for specifics on his policies, especially around tariffs, interest rates, and government spending, which could all increase inflation.
But many on Wall Street are hopeful.
Jefferies’ Fullerton expects the second half of 2025 could resemble the M&A volumes of 2021, focused on growth sectors such as technology and healthcare. “I think you’re going to see a fair amount of jumbo LBOs,” Fullerton said.
Listen to Vanguard’s thoughts on junk bonds on the Credit Edge podcast here.
Week in Review
Credit markets rallied around the world after Donald Trump’s US presidential win, as money managers readied for tax cuts and lighter regulation to potentially boost companies’ bottom lines.
China gave indebted local governments a 10 trillion yuan ($1.4 trillion) lifeline but stopped short of unleashing new stimulus, preserving room to respond to a potential trade war when Donald Trump takes office next year.
Some of America’s biggest businesses may lose their coveted investment-grade ratings, flooding US junk-bond markets with as much as $60 billion of debt after soaring inflation has driven up many companies’ operating costs.
Verizon Communications is buying back as much as $3.5 billion of its debt maturing in the next two years to help keep a lid on its leverage.
Chinese property developer Sunac China Holdings Ltd. is looking to cut its yuan-denominated bonds by more than half under a proposed onshore restructuring plan.
Super Micro Computer Inc. could face an early repayment on up to $1.725 billion of its bonds should its accounting woes result in it being booted off the Nasdaq stock exchange.
Bank of America Corp. is considering a structured financial transaction that would offload some of the risk on a $1 billion portfolio of corporate loans.
China’s Kaisa Group Holdings Ltd. is seeking to sell its Hong Kong headquarters office, marking the defaulter’s latest effort to ease funding pressure.
Franchise Group Inc. won temporary court permission to borrow as much as $250 million from its senior lenders in order to keep operating while the bankrupt, brand management firm tries to cut debt and sell itself.
TGI Friday’s Inc. is speaking with potential buyers, a company attorney said Monday, and disclosed it suffered a “significant” revenue hit when it lost control of assets it used to secure $375 million in bonds it sold in 2017.
Banks including Barclays and Deutsche Bank are having to hold onto a chunk of financial technology firm FNZ Group Ltd’s $2.1 billion refinancing deal after failing to drum up enough interest to sell the whole loan onto investors.
On the Move
Credit Agricole SA hired two former HSBC bankers for its fixed-income debt capital markets. They are Chris Croker, regional head of fixed-income debt capital markets and liability management for the Americas in New York, and Jon Gray, head of US FI DCM and regional head of capital solutions for the Americas.
John E. Kim, the former chief executive officer of Panagram Structured Asset Management, is launching a new credit manager with backing from investment firm RedBird Capital Partners. The new firm will be called Reckoner Capital Management.
Pamalican Asset Management Ltd., a hedge fund backed by Millennium Management that focuses on equity capital markets, is hiring Jose Castillo to lead its US expansion.
Goldman Sachs Group Inc. plans to add the most executives to its partnership since David Solomon took over.
Jefferies Financial Group Inc. is growing its restructuring practice in Europe with its first hire in France, namely de Victor de Carville, who previously worked at Houlihan Lokey Inc.
–With assistance from Neil Callanan, Ben Scent and Yiqin Shen.
