Investing.com -- With a Republican sweep in the White House, Senate, and potentially the House, Bank of America analysts anticipate a surge in mergers and acquisitions (M&A) activity.
According to BofA, the election outcome could catalyze deal-making across sectors, especially if President-elect Trump appoints a new Federal Trade Commission (FTC) chair to replace Lina Khan, who has previously blocked several large-scale mergers.
The analysts note that a more permissive regulatory environment could "unleash an M&A pick-up," especially in sectors like banking and staples, which have already seen increased deal announcements in recent months.
BofA's banking team is particularly optimistic about a potential M&A revival in the financial sector, noting that bank M&A activity has historically been more than 50% higher under Republican administrations.
In sectors like biotech and staples, M&A activity is expected to benefit from fewer regulatory hurdles post-election. However, BofA says M&A growth may vary by sector. They believe that while biotech and banking are primed for activity, some software companies remain cautious due to a strategic focus shift toward data and AI rather than acquisitions.
Macro (BCBA:BMAm) factors also appear favorable for an M&A pickup. BofA highlights strong equity market returns, tight credit spreads, and historically low small-cap valuations as green lights for M&A.
Yet, they note that there are cautionary signals, including concerns over a slowing GDP, persistent market volatility, and rate uncertainty.
BofA also points out that small-cap targets are likely to see strong post-announcement gains, with large-cap acquirers increasingly rewarded as well.
"Several small cap sectors have consistently led the index when M&A has picked up: Health Care, Tech, Staples, Utilities," said the bank. However, they caution that while specific small-cap sectors may benefit, the Russell 2000 index overall does not consistently outperform in years of high M&A activity.