M&A and IPOs in 2025: The Impact of Economic Cycles and Trump’s Policies

Over the past decade, mergers & acquisitions (M&A) and initial public offerings (IPOs) have followed economic cycles, shifting with interest rates, market sentiment, and regulatory changes.

M&A: Booms and Slowdowns

M&A activity surged between 2015 and 2019, driven by low interest rates, strong corporate earnings, and a push for consolidation, especially in sectors like tech and healthcare. Companies were eager to expand their market share, acquire new technologies, and streamline operations. That momentum took a hit in 2020 when the pandemic created massive uncertainty, forcing many deals to be put on hold. However, as the economy adapted, deal-making roared back in 2021, fueled by cheap financing and growing demand.

That rebound didn’t last long. Starting in 2022, rising interest rates and inflation concerns made borrowing more expensive, which slowed the pace of acquisitions. Large-scale deals became more challenging, but M&A activity didn’t vanish entirely. Sectors like energy and AI-driven tech remained active, as companies in these industries saw long-term strategic value in acquisitions despite the tougher financial environment.

In 2023 and 2024, deal-making remained sluggish compared to the previous boom years, with fewer mega-deals and a focus on strategic, smaller-scale acquisitions. While sectors like renewable energy and artificial intelligence continued to attract investment, industries more sensitive to interest rates, such as real estate and consumer goods, saw a decline in M&A activity. As companies adjusted to higher borrowing costs, many prioritized internal growth over large acquisitions.

IPOs: Peaks and Corrections

The IPO market saw an explosion in 2020 and 2021, thanks to low interest rates, strong investor appetite, and the rise of SPACs as a fast-track alternative to traditional public offerings. Many companies, especially in tech, saw sky-high valuations and rushed to go public while market conditions were favorable. However, this enthusiasm didn’t last.

By 2022, volatility in the stock market, aggressive interest rate hikes, and fears of a potential recession led many companies to postpone or cancel their IPOs. Investors became more selective, and valuations that once seemed justified started looking inflated. In 2023 and 2024, IPO activity showed signs of recovery, but companies remained cautious, often choosing to raise funds privately rather than face uncertain public markets. While AI and biotech firms continued to attract strong investor interest, traditional consumer and retail IPOs struggled to regain traction.

The impact of Trump’s election on M&A

As we all awoke on November 6th after an overwhelming red wave, another wave followed — this time a green one — in which the markets posted extremely strong returns, with the S&P 500 up by more than 2.5%. Trump’s arrival in the Oval Office has been met with optimism by investors and certain economists. Can the same be said about M&A activity? Almost certainly. A Trump Bump pickup in M&A can be expected, driven by fewer regulations, lighter tax burdens, the onshoring of manufacturing, and potential influences on interest rates.

Changes in senior leadership in the Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division are expected to lead to a relaxation of M&A regulations, as Trump appointed Republican Andrew Ferguson and Gail Slater to key positions. Both are more open to deal-making, especially after multiple blocked mergers under FTC Commissioner Lina Khan, such as the Kroger and Albertsons megamerger of 25 Billion USD$. Trump firing Lina Khan and ending her Khanservatism will likely encourage corporations to pursue their delayed M&A activities with a lower risk of antitrust scrutiny and monopoly allegations.

From individual consumers to corporations, Trump has consistently promised tax cuts. With a Republican majority in both chambers of Congress, the reinstatement of the Tax Cuts and Jobs Act (TCJA), along with additional provisions, should be expected for 2025. It is to no surprise that lower tax rates incentivize M&A, benefiting both the seller and the buyer — the former keeping more of their capital gains, and the latter having more cash on hand for acquisitions. Trump also touted the idea of an even lower corporate tax rate — 15% — for American companies who “make their products in America”. While it is difficult to assess the viability of his promises—ranging from speeches to TruthSocial posts— these comments illustrate a growing trend in business transformation: onshoring.

How Trump’s Tariffs Could transform the M&A Landscape

If history has taught us anything, it is that tariffs are never just about trade. They affect almost every sector, shifting incentives, restructuring supply chains, and redefining competitive environments. Trump’s second term promises an increase in protectionism policies, with aggressive tariffs aimed at China, Mexico, and even Canada. While the administration has positioned these policies as a way to strengthen the American industry, the immediate effect on M&A could be more complex. As seen in January 2025, dealmaking slowed significantly in the first month of Trump’s presidency, with a near 30% drop in M&A activity as markets  reevaluated company values and potential risks. This was the lowest level of transactions since 2015.

One of the biggest challenges arising from these tariffs is valuation uncertainty. Due to the uncertainty surrounding tariffs, forecasting earnings becomes more challenging, making both buyers and sellers reluctant to finalize deals without substantial protections, such as price adjustments or contingency clauses. However, as noted by KPMG, most sellers are unwilling to accept such conditions, leading many buyers to sit on the sidelines until the dust settles. This hesitancy will likely continue to slow down M&A activity in the short term, particularly in industries that rely heavily on global trade, like manufacturing and consumer goods.

Yet, while some companies may delay their acquisition plans, others will use M&A as a way to protect their business. As tariffs force changes in supply chains, businesses will increasingly turn to vertical integrations (acquiring their suppliers) and domestic acquisitions to protect their operations. We’re already seeing a wave of onshoring in response to political and tariff-driven pressures, particularly with multinationals moving operations out of China in favor of the U.S., India, and Vietnam. Canadian firms may also begin acquiring U.S. assets instead of exporting goods to America, a decision that would allow them to sidestep trade barriers.  On the longer term, we can therefore expect the tariffs to translate into a rise in strategic acquisitions as companies buy up domestic manufacturers and suppliers to secure their production lines and reduce reliance on tariff-heavy imports.

2025 Outlook

As 2025 unfolds, the investment banking sector is poised for another pivotal year, heavily influenced by Donald Trump’s return to the White House. The intersection of deregulation, tax policy shifts, and evolving macroeconomic conditions will shape both the global and local M&A landscape.

Global M&A volumes are expected to exceed $4 trillion, the highest in four years, with investment banking revenues rising 5.7% to $316 billion. However, Trump’s 25% tariff on Mexican imports and 10% on Chinese goods raise concerns over supply chain disruptions and market volatility. The Bank for International Settlements warns these uncertainties could complicate monetary policy, especially in Europe and Asia. While Singaporean banks expect higher Q4 profits, falling loan demand and rising non-performing loans may destabilize emerging markets. Despite a pro-business U.S. stance boosting IPOs, investment banks must navigate protectionism and geopolitical risks.

Canada’s investment banking sector also faces uncertainty under Trump’s re-election, with a proposed 25% tariff on imports prompting delayed investments. Bank of Canada Governor Tiff Macklem warns prolonged uncertainty could slow economic growth, though the economy is still expected to approach its long-run average of just under 2% in 2025, aided by lower interest rates easing debt burdens. However, tariff-driven inflation may complicate monetary policy, forcing the central bank to strike a balance between supporting growth and controlling price pressures. In response, some Canadian firms may shift supply chains or acquire U.S. assets to bypass trade barriers, reshaping cross-border deal-making. Sectors like manufacturing and commodities, heavily reliant on U.S. exports, will likely be most affected. While a pro-business U.S. stance may boost M&A activity, protectionist policies add uncertainty, making 2025 a year of both opportunity and risk for Canadian investment banks.

Conclusion: A Defining Year for M&A and Investment Banking

With shifting economic conditions and new political dynamics, 2025 is set to be a transformative year for M&A and capital markets. Trump’s return to the White House signals a shift toward deregulation and tax incentives, potentially reigniting deal-making. However, trade tensions, high borrowing costs, and valuation uncertainties continue to challenge corporate expansion strategies.

What remains clear is that 2025 will be a pivotal year for deal-making. Will Trump’s economic policies spark a new wave of corporate expansion, or will global instability and protectionism dampen the momentum? As businesses, investors, and policymakers navigate this evolving financial landscape, only time will tell which forces will ultimately shape the future of M&A and capital markets.

Investment Banking Team, Clara Labelle, Philippe Joyal, Jacques Saad, Marc-Alexandre Séguin