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The M&A Boom May Be Delayed… but Not Canceled

The Federal Reserve kept interest rates as-is last Wednesday… yet again. Though it’s still predicting two rate cuts this year… eventually.

The U.S. central bank made it clear that it’s not optimistic in the near term. With President Trump’s tariff wars likely to ramp up, the Fed now expects:

  • A 2.8% core inflation rate for the year compared to last year’s 2.5%

  • 7% GDP growth compared to previous expectations of 2.1%

  • Unemployment ticking up to 4.4% from 4.3%

To quote Fed Chair Jerome Powell, tariffs “tend to bring growth down, and they tend to bring inflation up” in the short to midterm.

That kind of pessimism marks a sharp break from all the enthusiasm we saw in November. Most Americans expected inflation to come tumbling down, giving the Fed every reason to cut interest rates. And that, in turn, would encourage more Wall Street dealmaking.

Mergers and acquisitions (M&A) were supposed to be surging by now. Instead, we have leading brokerage firm Oppenheimer downgrading Goldman Sachs (GS) from “Outperform” to merely “Perform.”

It also downgraded Carlyle Group and Jefferies Financial Group, all because, “Coming into this year, we were very optimistic about a major rebound in M&A activity and its attendant financing activity. There is, however, thus far no visible sign of this M&A rebound.”

Has the M&A revival really stalled? Let’s have a closer look.

Google and Pepsi Make Their Move

First, it’s worth pointing out there has been some uptick. So far in 2025, deal volume is up 2.4% over the same period from 2024. And, last week, we did get some pretty big news from Alphabet (GOOG) and Pepsi (PEP).

The latter announced a $1.95 billion agreement to purchase prebiotic soda brand Poppi. But it was Alphabet (GOOG) that really stole the show with its $32 billion all-cash acquisition plans for cybersecurity startup Wiz.

Looking at Pepsi, this seems to be a response to new initiatives coming out of Robert Kennedy Jr.’s Health and Human Services ("HHS") Administration.

As Health and Human Services secretary, Robert Kennedy Jr. promised an evaluation of everything from medications to processed foods, and it appears that he means business. Recently, he proposed banning soda from SNAP purchases.

Certainly, food companies appear to be taking him seriously. Coca-Cola (KO) launched its own prebiotic line, Simply Pop, in February. And upstart competitor Olipop raised $50 million around the same time in a Series C funding round – giving it a $1.85 billion valuation. Pepsi couldn’t be left out, which is what the Poppi acquisition was all about.

These businesses and investors recognize that we’re at the beginning of a massive shift in consumer mentality. And they want their piece of the healthy pie.

Then there’s Alphabet’s acquisition of Wiz. I know we’re several years into the artificial intelligence (“AI”) boom, constantly inundated with news about it. But acquisitions like this are likely a sign of things to come.

That’s because the large tech firms are in a knife fight for AI supremacy. Alphabet’s acquisition of Wiz – the largest in the company’s history – shows its willing to make big purchases to make their cloud services competitive. I wouldn’t be surprised if the other Big Techs – which are flush with cash – follow suit.

And for the first time in a long while, these large acquisitions are more feasible. That’s because the regulatory regime in D.C. has changed.

Ms. Khan Leaves Washington

All the way back in June of last year, our own Nick Ward argued that:

If Donald Trump is elected as America’s 47th president, there may be one woman responsible for putting him over the top. And it’s probably not who you think.

It’s not Nikki Haley. It’s not Melania. It’s not even Ivanka. It’s Lina Khan, Chair of the Federal Trade Commission (“FTC”).

[… ]

Khan’s hardened views against M&A have turned many in America’s C-suite against Biden, who appointed her. And while few will admit it, many executives are quietly hoping Trump takes office and replaces Khan.

Nick pointed out how Lina Khan, then chair of the Federal Trade Commission, was “very effective at stalling [M&A] activity, particularly for the Big Tech companies.” In contrast, “One of Trump’s primary focuses is likely to ensure that American industry – and especially technology – beats out China and maintains global leadership.”

And Nick was right. With Trump back in the Oval Office, Khan was out. The new FTC Chair, Andrew Ferguson, has promised a less combative regime. He won’t be a rubber stamp, but he recently promised to not let proposed deals “die on the vine.”

The fact that one of those Big Tech companies announced a $32 billion acquisition not even two months into Trump’s presidency seems like a fairly good indication that Nick was right…

And that we’re in for more major M&A activity from here.

The Proof Is in the Production

I know Trump appears laser-focused on evening out global trade – to the detriment of anything and everything else. However, I think there’s a lot more to his actions than the mainstream media is letting on.

He’s said that some short-term pain is worth the long-term gain of bringing manufacturing back to America. And maybe he’s right considering how, thanks to his tariff threats and actions:

  • Hyundai aims to boost production at its Savannah, Georgia-based facility from 300,000 units to 500,000.

  • Honda Motor (HMC) is investing $4.5 billion in Ohio for global manufacturing operations.

  • Volkswagen plans to build a new $2 billion plant in South Carolina for a new battery-electric SUV and pickup plant. And it’s evaluating U.S.-based production for its Audi and Porsche brands as well.

  • Volvo said it would expand domestic production at its plant in Ridgeland, South Carolina.

Meanwhile, Inventec, one of Nvidia’s AI server suppliers; Louis Vuitton Moët Hennessy, the world’s largest luxury conglomerate; Essity, a Swedish hygiene-products company; Campari, an Italian spirits maker; Compal Electronics, a Taiwanese laptop manufacturer; LG Electronics; and Samsung are all considering their own investments into the U.S.

And I don’t think that’s the end of it either.

As I suggested as far back as September 2023, I expect to see a historical “building boom” – especially in major industries like automotive, electronics, luxury goods, and manufacturing. “For decades, companies used ‘offshoring’ to reduce the cost of producing their goods by sending manufacturing jobs overseas to countries where labor was cheap.”

But that’s becoming less and less economical. And Trump is making sure it becomes downright unaffordable.

If he continues with the string of manufacturing successes we saw above, more and more business will come to the U.S. And if more and more business comes to the U.S., that will mean more and more opportunity for M&A as companies vie for resources and results.

So while these first two months of Trump’s presidency might seem disappointing in this area, just hold on. I wouldn’t be surprised to see M&A activity pick up from here.

Regards,

Brad Thomas
Editor, Wide Moat Daily

P.S. I’ll discuss one of my building boom picks on my YouTube channel (The Wide Moat Show) this Thursday. Make sure to tune in at 11:00 a.m. EST. And click here to subscribe!

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Do you agree with Brad that there is a chance for M&A activity to pick up? Write us at feedback@widemoatdaily.com.