Deregulation and the Future of M&A
Mergers and acquisitions (M&A) are business transactions in which two companies combine, or one company purchases another, to form a larger entity. These deals are often pursued in an attempt to improve growth, profitability, and capabilities. Since 2021, M&A have been decreasing substantially. Rising interest rates and tighter regulatory scrutiny have been major obstacles to deal flow. However, with a recent change in administration, many wait in anticipation to see how this activity might shift. If this Trump presidency brings deregulation, an increase in activity becomes quite plausible, which could lead to both positive and negative macroeconomic outcomes. While growing rates of consolidation may drive efficiency, global competitiveness, and short-term economic gains, it also poses risks such as reduced competition, job displacement, and financial instability, ultimately shaping the broader trajectory of the U.S economy.
This year is projected to be a breakout year for M&A, especially for industries heavily influenced by capital gains tax or regulatory uncertainty (McKinsey 2025). Many factors affect deal activity; however, deregulation can significantly influence it through removing regulatory barriers, incentives for consolidation, and easier access to capital. The removal of regulatory barriers begins with Trump’s plan to replace leaders at multiple US regulatory agencies. In January, Trump appointed Andrew Ferguson as commissioner of the Federal Trade Commission (FTC), succeeding Lina Khan. Ferguson has criticized Khan’s regulatory activity, with expectations of him taking a different direction with regulatory agencies in regard to mergers. Reducing regulatory barriers can significantly streamline M&A transactions by minimizing hurdles caused by agencies. A study by the Bayes Business School found that deregulation positively influences deal activity through significantly lowering costs and complexities associated with mergers and acquisitions. As of March 3rd, the Federal Deposit Insurance Corporation’s (FDIC) board of directors approved a proposal to roll back Biden-era policies that elevated the scrutiny of large bank mergers. Banks have complained for the past few years that obtaining approvals for mergers is complex, lengthy, and opaque (Schroeder 2025). These actions further solidify the new administration's push to lower regulatory barriers. With fewer barriers intact, companies have a higher incentive to pursue mergers to increase market share or gain access to new markets. Deregulation could encourage firms to pursue deals that allow them to dominate a particular sector or region. The reduction in barriers would facilitate a company's goal to expand rapidly, increase profit, and pursue economies of scale(Keenan & Dariusz 2023). Finally, reduced regulatory oversight, especially in the finance sector, could make it easier for companies to secure capital needed for larger scaled deals. With eased constraints, financial institutions can access favorable financing terms, increasing the amount of lending they can provide. This would enable them to pursue larger and more complex transactions, in turn increasing M&A activity.
If an increase in mergers and acquisitions happens due to deregulation, several economic benefits could occur. Increased efficiency, boost to global competitiveness, and stock market gains are all examples of how the economy could benefit from increased M&A. Efficiency and productivity can both improve with increased activity. Larger firms created through consolidation can achieve better economies of scale through cost savings due to increased production volumes, stronger bargaining power with suppliers, and optimized resource allocation. Combining operations allows for companies to streamline which promotes operational synergies. Synergy is the value that two companies get from working together in tandem. Most notably, the merger between T-Mobile and Sprint in 2020 resulted in lower-cost 5G plans, as they were able to now compete with the stronger competitors such as AT&T and Verizon(Feiner 2020). Increases in M&A activity gives companies more access to capital. When two companies merge, their combined financial strength typically provides greater borrowing power. With increased capital, companies can expand operations and invest in new projects that can aid in efficiency and productivity. Furthermore, firm consolidation gives them the opportunity to leverage their new scale, innovation capacity, and market reach to compete at a global level. Companies can tap into emerging markets more easily and create stronger negotiating power with suppliers and distributors in both domestic and global markets, further driving economic growth. Finally, increases in deal flow can drive up stock prices, stimulating economic growth. Merging or acquiring other companies is often viewed as a sign of growth, which is promising for investors, ultimately driving up the stock price (Ţilica 2012). Markets that experience a surge in M&A activity can stimulate broader economic growth. Consumers often spend more during bull markets, occasionally caused by corporate transactions because they are making more from the effects of a stronger economy and feel wealthier when they see their portfolios increase in value. When spending is up, other businesses experience the benefits in the form of increased revenue. Elevated transaction volume has the ability to pose as an economic tailwind in many scenarios; however, it is important to acknowledge the potential drawbacks that may emerge.
Public opinion regarding mergers and acquisitions has consistently been negative—and for good reason. Negative perception of M&A is most notably tied to losses in jobs, monopolies, financial instability, and offshoring. The primary argument against corporate transactions is the employment or restructuring after the consolidation is complete in the attempt to maximize profits. For domestic M&A, all sectors were seen to experience short-term negative employment effects (Lehto & Böckerman 2008). Consolidation can mean many separate things for different companies and industries. Horizontal mergers are those in which both companies operate in the same industry and offer similar products. This would cause overlapping departments which would lead to layoffs. Although not as impactful, conglomerate mergers can cause newly merged companies to eliminate redundant positions in management and administration(Goerlitz 2024). Another possible headwind to economic growth is the possibility of monopolies occurring. With an increase in mergers, there is a risk that dominant industry players could form monopolies, eliminating competition and gaining full control over pricing power. Further, mega-firms can block innovation and have less incentive to maintain quality standards, hurting the economy. Additionally, with less regulation comes the possibility for more large-scale M&A. These deals pose unique risks especially for the acquiring firm due to the amounts of leverage that could be involved in the deal. When companies overextend themselves financially, it can strain their cash flow, limit ability to meet obligations, and trigger a downward spiral (Furfine & Rosen 2006). If an internal downturn happens due to over use of leverage, economy-wide effects can occur, shareholders, employees, and consumers all being vulnerable. In more severe examples, poorly executed deals can cause investor confidence and stock prices to decline. Finally, offshoring and outsourcing are possible results of M&A activity that can dampen the economy. In search of cutting costs, businesses can achieve significant savings in production, customer service, or administrative tasks by offshoring or outsourcing certain functions. This can cause unemployment rates to rise along with a decrease in monetary flow, eventually affecting the whole economy (Barbe & Riker 2018). An example of this was AT&T’s acquisition of DirectTV in 2015. After the acquisition, AT&T outsourced a significant number of jobs overseas to reduce costs (CWA 2018). The majority of these economic headwinds come from the greed and incentive to take more risks in a market that is more lenient to M&A for financial benefit.
Since 2021, M&A activity has significantly declined. Along with interest rates and monetary policy, regulatory scrutiny has accounted for a sizable portion of the deal prevention efforts led during the Biden administration. However, with a recent shift in administration, regulatory borders are predicted to be lowered and with that comes possible increases in cleared deals. Companies are recognizing a window of opportunity with easier access to capital, encouraging increased consolidation. A possible spike could result in economic benefits such as synergies, cost savings through economies of scale, and enhanced global competitiveness. Additionally, this often drives stock market gains, boosting consumer wealth and stimulating economic growth. On the other hand, a rise in closed deals introduces risks including job displacement, monopolies with pricing power, and financial instability through excessive debt. Further, offshoring and outsourcing could rise, leading to further domestic unemployment and reduced economic activity. While deregulation could spur economic growth, managing these risks is essential for long-run economic stability. With that being said, the potential increase in M&A remains uncertain, as many factors and people play a role in deal flow. With only four years available for the Trump administration and uncertainty surrounding future leadership, predicting the long-term impact has become increasingly complicated.
References
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