Wall Street analysts and investors are increasingly anticipating a significant resurgence in mergers and acquisitions (M&A) activity should Donald Trump secure a return to the U.S. presidency. This outlook is being fueled, in part, by recent monetary policy adjustments, including interest rate cuts from the Federal Reserve, which have lowered the cost of capital crucial for financing large transactions, particularly those involving substantial debt.
Leading strategists are forecasting a notable uptick in deal volume. David Kostin, chief U.S. equity strategist at Goldman Sachs, projects a substantial 20% increase in the dollar-volume of M&A activity in 2025. This prediction stands in stark contrast to the 15% decline observed in the previous year, signaling a potential reversal of recent trends.
Sectors Ripe for Consolidation
Investment professionals are identifying specific sectors poised to be at the forefront of this anticipated dealmaking boom. Andrew Peck, co-chief investment officer at Baron Capital, which manages $43 billion in assets, highlights healthcare, consumer staples, and technology as particularly fertile ground for M&A. Sam Stovall, Chief Investment Strategist at CFRA, echoes the potential in healthcare and consumer staples, while also adding industrials and materials to the list of sectors likely to see increased activity.
These sectors often contain mature companies with stable cash flows or innovative firms seeking scale, making them attractive targets for larger corporations looking to grow or diversify.
Identifying Takeover Candidates
Beyond sector analysis, Wall Street firms are pinpointing characteristics that make individual companies attractive acquisition targets. According to analysis from Bank of America, companies exhibiting strong financial health are often prime candidates. Their criteria include entities with positive cash flow, above-average sales growth relative to their peers, and relatively low debt levels. These attributes suggest a company is well-managed, profitable, and less risky to acquire.
Market watchers also anticipate that mid-cap stocks – generally defined as companies with market capitalizations between $2 billion and $10 billion – are expected to be prominently in the crosshairs of potential acquirers. These companies are often large enough to be impactful additions to an acquirer’s portfolio but small enough to be digestible transactions.
The Political Factor
The anticipated shift in dealmaking pace is also being viewed through a political lens. Dealmaking activity during the Biden administration was notably sluggish compared to historical standards. Market participants suggest this was partly attributable to a more aggressive antitrust enforcement stance led by figures like FTC Chair Lina Khan. A potential change in administration is seen by some as likely to usher in a different regulatory environment, potentially more favorable to large corporate transactions.
Key Stocks Identified
Against this backdrop of potential market and political shifts, analysts have identified a pool of stocks considered prime targets for acquisition. While a comprehensive list of 20 stocks is cited, specific examples highlighted include cloud storage company Dropbox. With an approximately $8.5 billion market capitalization, Dropbox is noted for its impressive 55.6% return on invested capital (ROIC). This high ROIC suggests the company is highly efficient at turning its capital into profits.
In the consumer staples and retail sectors, companies like Bath & Body Works, Dillard’s, and Crocs are also named as potential targets. These companies also demonstrate strong financial performance metrics considered attractive to potential buyers:
* Bath & Body Works: Exhibiting a 37% ROIC.
* Dillard’s: Showing a 28% ROIC.
* Crocs: Posting a 26% ROIC.
These figures, particularly the robust ROIC metrics, are seen as indicators of companies that are efficiently generating returns, making them appealing candidates for strategic acquisitions seeking profitable growth.
Outlook
The confluence of potentially lower borrowing costs and an anticipated shift in the regulatory landscape under a possible Trump presidency is building significant expectation on Wall Street for a substantial increase in M&A activity in the coming years. While specific deals are never guaranteed, the market is clearly positioning itself for a more active period of corporate consolidation, with specific sectors and financially strong mid-cap companies drawing particular attention.
