With Republicans taking control of Congress, Wall Street is buzzing about a potential boom in mergers and acquisitions (M&A) under the upcoming Trump administration.

Bank of America analysts see brighter days ahead for deal-making, anticipating that Trump could remove Federal Trade Commission Chair Lina Khan, whose aggressive antitrust stance has been a major roadblock for M&A activity across sectors.

Combined with favorable macro factors and investor demand for capex and M&A over debt paydown, there are plenty of reasons to believe that 2025 and beyond could see significant deal activity.

Banks And Biotech: Two Key Sectors To Watch

Analysts at Bank of America's U.S. banks team are particularly bullish about the M&A prospects for financials, which have historically enjoyed more than 50% higher deal activity under Republican administrations than Democratic ones. With regulatory scrutiny expected to loosen, the landscape is ripe for a surge in bank deals.

Deal activity in biotech has already started picking up, especially in smaller acquisitions. Big Pharma faces mounting pressure to offset patent expirations, so it’s hunting for acquisition targets to replenish its drug pipelines. Lower rates and potential deregulation could further fuel biotech M&A as we head into 2025.

"The election results could lead to a less restrictive regulatory environment, which may open the door for more bank mergers and acquisitions,” Jill Carey Hall, CFA, a Bank of America analyst, said.

Macro Factors: Green And Yellow Lights for M&A

Several macroeconomic factors support a cyclical pick-up in M&A activity.

Strong equity market returns, cheap small-cap valuations relative to large caps and tight credit spreads all suggest a favorable environment for deal-making.

Not all signals are flashing green. Slowing GDP growth, rate uncertainty and high volatility could throw some caution flags. Long-term growth expectations for small caps, though improved, still remain below average.

Bank of America's credit strategists predict that 2025 could be a better year for M&A activity as rate cuts begin to materialize and volatility subsides.

"Sponsors are sitting on a pile of uncalled capital, and there's a real incentive to deploy it in a friendlier economic environment," Hall said.

Who Stands To Gain: Small-Cap Targets, Large-Cap Acquirers

With large deals on the decline, smaller targets have become the prime candidates for takeovers.

Aggregate deal value has been falling in recent years as mega-cap deals have dried up and smaller, more manageable transactions have become the norm.

This trend has paid off for both sides: small-cap targets have outperformed post-announcement and large-cap acquirers have seen record one-day gains in 2023 despite paying higher deal premiums.

This pattern suggests that investors are rewarding companies that buy growth, especially in today's uncertain economic landscape.

10 Potential M&A Candidates Among Large Caps

Bank of America's latest screening of potential M&A candidates includes high-growth, undervalued names, each with distinct value propositions that may appeal to suitors looking for long-term growth.

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