What are the second-order effects of Trump's policies on M&A
Trump's policies have led to several second-order effects on M&A activity, contrary to the initial optimism of some "tech bros" who supported his re-election:
Wait-and-see sentiment: Dealmakers are hitting the pause button on their plans due to uncertainty brought about by Trump's aggressive policy stance. The number of deals has dropped to the lowest level in years, with only 1,100 transactions signed year-to-date as of February 18, 2025, the slowest start since 20031.
Tariff impacts: Trump's tariffs have had a significant effect on souring initial optimism for M&A. Companies sourcing materials from China and Asia, particularly manufacturers, are affected. Many potential sell-side transactions that were expected to begin early in the year are now on hold1.
Supply chain disruptions: Tariffs, supply chain issues, and labor force disruptions have contributed to the overall uncertainty in the M&A market1.
Sector-specific challenges: Some sectors face challenges related to the elimination of legacy policies such as the IRA and CHIPS Act. This may put related investments at risk and create an uncertain M&A market in onshoring manufacturing and production of technology components and electric vehicle batteries3.
Increased scrutiny of cross-border deals: Despite expectations of lessened regulation, cross-border M&A activity continues to face scrutiny, particularly for purchases of U.S. targets by acquirers from rival nations like China4.
Mixed effects on middle-market companies: While these companies may benefit from a boost in GDP growth in the short term, they face challenges from inflationary policies, higher interest rates, and potential margin erosion if they cannot pass on increased costs to consumers5.
Potential for orphaned companies: Large investments made in certain sectors over the past three years could result in depressed valuations and even orphaned companies in vulnerable industries3.
These second-order effects highlight the complexity of the M&A landscape under Trump's policies, demonstrating that the initial focus on reduced regulation and a more favorable antitrust environment overlooked broader economic impacts and policy uncertainties.