Dive Brief:

• Merger-and-acquisition activity could pick up next year thanks to pent-up demand and interest rate cuts, as well as deregulation efforts expected in the incoming Trump administration, according to Ernst & Young’s latest monthly report on deal activity. 
• Recent interest rate cuts by the Federal Reserve will likely serve as a strong tailwind for M&A in the coming year by lowering the cost of capital for private equity firms and making it easier to underwrite investments, according to the analysis, which was shared with CFO Dive Wednesday. Meanwhile, the prospect of regulatory relief under President-elect Donald Trump has also boosted deal-makers’ hopes, EY said.  
• “With Trump having secured a decisive victory, investors will be weighing the impact his proposed economic and regulatory policies could have,” the report said. “Determining the deal momentum in the longer term will likely depend on how much of Trump’s tax, energy, trade and regulatory agenda is enacted.”

Dive Insight:

The Federal Reserve this month trimmed the benchmark interest rate by a quarter percentage point to a range between 4.5% and 4.75%, citing a softening labor market and progress in slowing inflation toward its 2% goal, CFO Dive previously reported. It was the Fed’s second rate reduction this year. 

Despite a strong economy overall, elevated uncertainty before the U.S. presidential election slowed M&A momentum in October, EY said. A total of 108 deals with an aggregate value of $96 billion were recorded last month compared with 109 transactions worth a combined $260 billion in the year-earlier period, according to data shared with CFO Dive by EY.

“The end of election uncertainty means the gates have flown wide open for CEOs and PE [private equity] firms to close M&A deals,” Mitch Berlin, Americas vice chair of strategy and transactions at EY, said in an emailed statement.

He said deal-makers are “energized” by the prospect of less regulation in the coming Trump administration as well as the possibility of continued interest rate cuts, which together could unleash “pent-up demand to drive double-digit increases in M&A volume again in 2025.”

The October slowdown will likely prove to be “a blip” this year, Berlin said.

Over the first three quarters of this year, aggregate U.S. deal value reached $1.32 trillion, a 5% increase year over year, according to data shared by EY.

While Trump’s return to the White House could lead to a more business-friendly regulatory environment, it also heralds likely shifts in U.S. economic policy — including sweeping new tariffs on imported goods — that may fuel inflation. 

“While more [interest rate] cuts are expected in 2025, Donald Trump’s presidential victory could lead the Fed to adopt a more cautious approach to the question of when and how much more to cut as it assesses how Trump’s economic proposals may turn into actual policies,” EY said.