By David Wainer and Dan Gallagher
Donald Trump's victory could prove to be just what the doctor ordered for dealmakers. That is particularly the case in sectors where consolidation has been most held back, including tech and healthcare. But much remains to be seen -- especially considering some of the populist forces that helped propel the 45th President to another term.
Wall Street's dealmakers are already sharpening their pencils. Investment banking titans Goldman Sachs, Morgan Stanley and JPMorgan Chase saw their stocks notch their biggest single-day gains in four years the day after the election. Megacap tech companies have also rallied -- adding $773 billion to their collective market cap this week -- while biotech stocks have jumped. One big reason for the optimism is the belief that the incoming administration will prove much more friendly to major mergers and acquisition transactions that have been increasingly off the table for these industries over the past four years.
Few figures in the Biden administration have clashed more with American corporations than Lina Khan, the 35-year-old chair of the Federal Trade Commission. Khan has been a vocal opponent of tech giants, challenging companies like Microsoft, Google, Amazon and Meta Platforms. The exit of Khan and her Justice Department counterpart, Jonathan Kanter, would signal a shift to a more relaxed antitrust stance.
While antitrust policy isn't the only factor influencing M&A, loosening restrictions could unleash pent-up demand. The market could use the boost. Last year saw the lowest number of M&A deals targeting U.S. companies since 2015, and this year is on pace to close with an even smaller number of transactions announced, according to data from Dealogic.
Megadeals have faced a particularly high barrier -- especially those by companies that regulators in the U.S. and Europe have deemed "Too Big to Deal." Enhanced scrutiny has significantly increased the time required to close deals of this scale. It took Microsoft nearly two years to complete its $75 billion acquisition of Activision Blizzard that wrapped last year, compared with the six months required to close its next largest deal -- the takeover of LinkedIn in 2016.
Such lengthy waits act as another barrier to dealmaking. Amazon gave up on buying roomba-maker iRobot earlier this year after 17 months; it took the e-commerce giant less than three months to clear its acquisition of Whole Foods in 2017 -- at nearly eight times the price. Adobe likewise walked away from an effort to buy design software maker Figma late last year after 15 months. By contrast, the average time to close major U.S. tech deals from 2018 through 2020 was a little under six months, according to Dealogic.
In healthcare, a shift in antitrust policy could enable pharmaceutical companies to pursue larger biotech acquisitions or even consider megamergers between pharma giants of the kind that were once common in the industry. In recent years, smaller deals of $5 billion or less have become much more popular in healthcare, while big or even midsize acquisitions have become less frequent. Notable exceptions were Pfizer's $43 billion buyout of Seagen and Amgen's $27.8 billion acquisition of Horizon Therapeutics, though the FTC tried to stop the latter and might have looked more favorably on the former due to Pfizer's positive role during the pandemic. Megadeals like Bristol Myers' acquisition of Celgene for $74 billion in 2019 or Pfizer's $68 billion acquisition of rival Wyeth in 2009 have been out of the question.
Health insurers might also see new opportunities. For instance, some on Wall Street expect that talks for a Humana-Cigna blockbuster deal -- which The Wall Street Journal reported took place last year -- could be revived. Humana stock is up over 10% since Trump's victory, also due partly to expectations of a more favorable Medicare Advantage policy.
In recent years, many in Silicon Valley and in the biotechnology industry have voiced concerns that the Biden administration's tough antitrust stance was eroding investor confidence in their ability to realize returns on investments. Critics argue that for venture capitalists to continue funding new ventures, they need the assurance that they can eventually reward shareholders through exits, often in the form of mergers or acquisitions.
Khan and her defenders argued that they weren't out to stop all deals, simply the ones that led to a higher concentration of market power that would eventually harm consumers. That created a bias among industry titans against large deals that could be susceptible to regulatory attention.
"Obviously, anyone who wants to speculate about these things would have to immediately consider the global regulatory environment," Disney Chief Executive Bob Iger said on an earnings call last year, when asked about the oft-circulated rumor that Apple might seek to buy the entertainment giant.
One important cautionary note: There is no guarantee that Trump will totally dial back antitrust scrutiny. Vice President-elect JD Vance is among a group of populist Republicans who have taken a more skeptical view of corporate power. Some have referred to them as Khanservatives, a nod to Lina Khan's populism. Another: There is no assurance that key regulators abroad, who have to approve many large-scale mergers that affect their markets, would follow a Trump administration's lead, especially if trade relations get more contentious.
Dealmaking depends on much more than just antitrust policy. Interest rates and the availability -- and valuation -- of suitable targets matter just as much. But dealmakers over the past four years have also had to factor in the growing odds that the federal government will just say no. Now they at least have a chance to reset those odds.
Write to David Wainer at david.wainer@wsj.com and Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
November 10, 2024 07:00 ET (12:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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