Wall Street expects Trump presidency will unlock deal-making

• Wall Street dealmakers and corporate leaders expect the flood gates to open on merger and acquisition activity after President-elect Donald Trump takes office in January.
• Deal-making has slowed in recent years, largely due to high interest rates, soaring company valuations and a tight regulatory environment.
• Kroger's takeover of Albertsons and Tapestry's proposed acquisition of Capri have both been scrutinized by regulators and could have a clearer path under a Trump presidency.

Wall Street dealmakers and corporate leaders expect the flood gates to open on merger and acquisition activity after President-elect Donald Trump takes office in January.

And he'll likely have congressional help. Trump defeated Democratic candidate Vice President Kamala Harris, and Republicans claimed a majority of the Senate in elections this week. That red wave is expected to spell loosening regulations on deal-making, with plenty of pent-up demand.

"We know kind of where the world is headed in a Trump environment because we've seen it before," said Jeffrey Solomon, president of TD Cowen, on CNBC's "Money Movers" Wednesday. "I think the regulatory environment will be much more conducive to economic growth. There will be lighter and targeted regulation."

Solomon added that the scaled-back regulation will be focused on certain areas "of particular interest to the Trump administration," rather than a broad based reassessment of the entire landscape.

In recent years, there has been greater scrutiny of pending deals by the Biden administration's Department of Justice and Federal Trade Commission, headed by Chair Lina Khan. Some have pointed to that dynamic as a chilling factor on deal flow. High interest rates and soaring company valuations have contributed, too.

Khan said in September that "when you see greater scrutiny of mergers, you can see greater deterrence of illegal mergers." Her hard line has drawn harsh criticism, but now, there's optimism around a forthcoming FTC with a lighter hand.

"Assuming interest rates drop and you see corporate tax rates go down, the ingredients are there for a really active M&A market," said one top dealmaker, who talked to CNBC on the condition of anonymity to speak candidly.

On Wednesday, markets rallied on the Republican presidential win, with the Dow Jones Industrial Average soaring 1,500 points to a new record high.

Sector specific

Some sectors, including financial and pharmaceutical industries in particular, are likely to get a lift under a second Trump regime, experts said.

Pharmaceutical executives are especially optimistic that lighter antitrust enforcement could clear the way for deal-making, said one health-care-focused M&A advisor, who added that antitrust enforcement could have "hardly gotten worse" under either administration but now believes things will improve "meaningfully."

Khan has taken on scores of biopharma mergers over the last four years, arguing that monopolies will stifle the development of new drugs in certain disease areas and hurt consumer choice. Biotech company Illumina last year said it would divest diagnostic test maker Grail after heated battles with the FTC and European antitrust regulators.

Also last year, the FTC blocked Sanofi's proposed acquisition of a drug in development for Pompe disease, a genetic condition, from Maze Therapeutics. Sanofi ultimately terminated that deal.

"Whether or not Lina Khan is bounced day one is a key consideration, but even if fewer changes at the FTC take place, there is no doubt this administration — at least on paper — will be far more amicable when it comes to business combinations," Jared Holz, Mizuho health-care equity strategist, said in an email on Wednesday.

One top dealmaker expected an M&A uptick broadly, but agreed that pharmaceuticals and the financial sector were particularly poised for a resurgence. That deal-maker also noted that with the Senate flipping, more outspoken antitrust voices like Sen. Elizabeth Warren, D-Mass., could find it more difficult to push for DOJ or FTC investigations.

In the financial sector regional banks recognize the need for scale, making them likely candidates for consolidation, said one former industry executive, noting that smaller banks had been getting gobbled up for "some time." That person expects the pace and size of those acquisitions to ramp up under a Trump presidency.

Other industries, such as tech, may still face an uphill battle in getting deals done.

One M&A advisor, who also spoke to CNBC anonymously, noted that Trump's disdain for Big Tech companies — historically active deal-makers — might keep them on the sidelines. On Wednesday, tech leaders took to social media to congratulate Trump.

Apparent GOP opposition to the CHIPS Act means that semiconductor consolidation might be challenging, the advisor noted, while cautioning it is still too early to know what a Trump presidency would mean. CNBC previously reported that Qualcomm recently approached Intel about a potential takeover.

"I think the simplest way to put it is more deals, less regulation with the administration having its thumb on the scale, perhaps with a willingness to pick winners and losers," said Jonathan Miller, chief executive of Integrated Media, which specializes in digital media investments.

Eyes on retail, media

A Trump presidency could usher in a number of retail deals that have been hamstrung by the FTC. Kroger's bid to take over grocery chain Albertsons could have a better chance of getting approved under Trump, as could Tapestry's proposed acquisition of Capri.

The merger between Kroger and Albertsons is currently under review by a federal judge, while Tapestry is working to appeal a federal order that granted the FTC's motion for a preliminary injunction against the tie-up.

"The hostile approach of the FTC to mergers and acquisitions will almost certainly be reset and replaced with a worldview that is more favorable to corporate dealmaking," said GlobalData managing director Neil Saunders. "This does not necessarily mean that big deals like Kroger-Albertsons will be waved through, but it does mean others like Tapestry-Capri will receive a far warmer reception than they have under the Biden administration."

Meanwhile, ongoing turmoil in the media industry has led many to consider consolidation as the next step for the sector.

Warner Bros. Discovery CEO David Zaslav on Thursday highlighted opportunities that could come up if regulations were to loosen, doubling down on comments he made earlier this year at Allen & Co.'s annual Sun Valley conference.

"We have an upcoming new administration. … It's too early to tell, but it may offer a pace of change and opportunity for consolidation that may be quite different, that would provide a real positive and accelerated impact on this industry that's needed," Zaslav said on an earnings call.

Broadcast station group owner Sinclair on Wednesday echoed a similar sentiment.

"We're very excited about the upcoming regulatory environment," CEO Chris Ripley said during an earnings call. "It does feel like a cloud over the industry is lifting here."

Still, the track record between the previous Trump administration and the Biden administration for media industry deals is split.

Trump's DOJ allowed Disney to buy Fox's assets, but then sued to block AT&T's deal for Time Warner.

Under the Biden administration, Amazon's $8.5 billion deal for MGM and the merger of Warner Bros. and Discovery Communications were both waved through, but a federal judge blocked the $2.2 billion sale of Simon & Schuster to Penguin Random House.

Skydance Media and Paramount Global agreed to merge earlier this year and expect to receive regulatory approval in 2025.