M&A practitioners anticipate a ‘Trump bump’
The scale of Donald Trump’s victory in the presidential election – and the fact the Republicans now have full control of Congress – has been greeted with optimism by U.S. dealmakers. In the wake of the election, the U.S. stock markets generally – and shares in big investment banks in particular – have surged, partly in anticipation of a deregulation-driven M&A boom.
Market participants appear to be betting that Trump’s plan to lower taxes, reduce the regulatory burden certain industries face and decrease the overall size of the federal government will have a positive impact on the U.S. economy, overcoming any potential inflationary spike caused by higher import tariffs and the tightening of immigration laws. The incoming administration is also set to create a merger review landscape that is more favorable to M&A, which we explore in more detail below.
Election set to boost tech-related deal-making
While the President-elect has been critical of some big tech companies, his return to the White House is being seen by prominent investors as good for the tech sector more broadly, particularly businesses involved in artificial intelligence and digital assets.
Amid expectation of a wave of lucrative government contracts, less tech-related regulation in certain areas and a boost from Trump’s desire to improve government efficiency, the media have reported founders being encouraged to pitch ideas to investors that have previously been challenging. These include businesses that sell software to federal agencies, or that develop fintech products for regulated entities such as insurers or investment banks.
Less government intervention in AI development
The Trump administration is expected to give AI companies greater scope to self-regulate while at the same time controlling the flow of AI and related technologies to China. Indeed the 2024 Republican Party Platform states the GOP’s desire to see AI development rooted in "free speech and human flourishing".
The President-elect has voiced his support for open-source AI models and has said he will repeal his predecessor’s Executive Order on Safe, Secure and Trustworthy AI. This invoked the Defense Production Act to require companies developing foundation models to share information with the government.
The new administration may also seek to follow a less risk-averse approach to the development of AI for national security purposes than is set out in President Biden’s National Security Memorandum on AI, which is designed to “galvanize federal government adoption of AI to advance the national security mission, including by ensuring that such adoption reflects democratic values and protects human rights, civil rights, civil liberties and privacy”. That said, elements of the Memorandum support the President-elect’s policy vision, including its commitment to double U.S.electrical capacity to support greater AI deployment.
The President-elect may also seek to promote the export of U.S. technology to allies, particularly in the Middle East, that are seeking to build their own sovereign AI infrastructure and ecosystems. Senior political appointees who served in the last administration will recall China’s effectiveness in deploying telecommunications infrastructure throughout the world, and the new administration will be keen to prevent that from happening with AI, while at the same time maintaining stringent controls over exports of advanced technology to the PRC.
Less government intervention in AI development could spark increased transactional activity, with companies pursuing strategic acquisitions to enhance their AI capabilities and tech giants engaging in M&A to bolster their competitive positions.
While critical of President Biden’s Chips Act – enacted to shore up domestic investment in semiconductor manufacturing – industry analysts are predicting the Trump administration could retain the program, albeit with some changes to the way funding is distributed. The Act gained bipartisan support in Congress when it was passed in 2022.
Another area where we expect to see change is in relation to cryptocurrencies and digital assets. Under President Biden, the Securities and Exchange Commission (SEC) and the Treasury Department have cracked down on crypto companies for alleged violations of securities and anti-money laundering laws, while banking regulators have discouraged lenders from entering the market.
The SEC has several pending litigations against crypto issuers, crypto platforms and crypto traders, many of which involve registration issues relating to whether or not the relevant crypto unit or token was in fact a security (our podcast from earlier this year explains the detail of some key recent cases).
President-elect Trump has nominated crypto advocate Paul Atkins to take over as chair of the SEC, and we therefore expect these cases to be phased out under the new administration.
Criminal crypto enforcement is also likely to be less of a priority at the Department of Justice (DOJ), particularly the sort of cases brought under the Bank Secrecy Act that we have seen in recent years.
One such case has seen charges filed against KuCoin, one of the world’s biggest crypto exchanges, and two of its founders. They are accused of “conspiring to violate the Bank Secrecy Act by willfully failing to maintain an adequate anti-money laundering program designed to prevent KuCoin from being used for money laundering and terrorist financing, failing to maintain reasonable procedures for verifying the identity of customers, and failing to file any suspicious activity reports.”
KuCoin has also been charged with operating an unlicensed money transmitting business and a substantive violation of the Bank Secrecy Act.
Additionally, Republicans are expected to use their control of Congress to further develop the U.S. regulatory framework for digital assets, particularly if the pro-crypto Republican Senator Tim Scott is named chair of the Senate Banking Committee.
Industry figures have called for measures that would boost crypto adoption, for example by making it easier for crypto companies to access banking services.
Were the President-elect to follow through with his campaign pledge to create a U.S. strategic Bitcoin reserve, it could help legitimize cryptocurrencies with a wider range of citizens.
U.S. will remain open for foreign investment – with some restrictions
Trump’s principal focus will be on keeping the domestic economy strong via low interest rates, low inflation and a rising stock market. This will require capital inflows, and as a result, the U.S. is set to position itself as being open to foreign investment over the next four years.
At the same time, we expect the new administration to emphasize an “America First” approach that would limit non-U.S. control and information rights in key industries and sectors, and outright prohibit non-U.S. investment in certain cases. How these conflicting priorities manifest themselves will be critical to assessing CFIUS clearance prospects and strategies following Trump’s inauguration.
CFIUS to focus on protecting jobs and scrutinizing Chinese dealmaking
CFIUS will continue to prioritize protecting critical infrastructure, strategic technologies, sensitive personal data, and the resilience of U.S. supply chains. It will also maintain its focus on assessing the impact of foreign investments on U.S. tech leadership (particularly microelectronics, artificial intelligence, biotech and quantum computing), and on addressing cybersecurity threats.
The current focus on China-related transactions is set to intensify. CFIUS will likely use its new authorities to examine the Chinese holdings, ties, or connections of foreign purchasers, even if those connections are not directly related to the purchases under review. This will create obvious challenges for businesses that operate globally, particularly those in Germany, which maintains extensive commercial links to China.
On the other hand, taking lessons from Trump’s first term on his often transactional approach to foreign policy, it would not be a surprise to see him inviting some tailored Chinese investment in non-strategic sectors where Chinese entities would not exercise control or have significant information rights.
We can expect heightened interest from the Committee in maintaining U.S. manufacturing capacity and scrutinizing the national security implications of U.S. outbound investments.
As far as the latter is concerned, the current administration has focused on U.S. investments into China, Hong Kong and Macau in technology sectors that are deemed essential to national security (namely AI, quantum computing, semiconductors and microelectronics),
Proposed legislation that is pending in Congress would expand this list to include hypersonics, satellite communication systems, and networked laser scanning technologies with dual-use applications, and bring additional countries – Iran, North Korea and Russia – into scope.
We also anticipate CFIUS’s jurisdiction expanding further to cover greenfield investments (i.e., investments where a foreign parent company would create an entirely new entity in the U.S.). Currently, CFIUS does not have the ability to review such investments, but this exception came under scrutiny from Congress in 2023 in relation to two proposed deals.
The first involved a bid from Gotion Inc. – a U.S. subsidiary of a Chinese company with links to the Beijing government – to build a USD2.4bn electric vehicle battery plant in Michigan. The second centered on a proposal from Fufeng Group, a Chinese manufacturer of bio-fermentation products, for a USD700 million corn milling plant in North Dakota. The plant, which was eventually cancelled, would have been just 12 miles from the Grand Forks Air Base.
Subsequently, the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party adopted more than 150 policy recommendations made in a bipartisan report. These included giving CFIUS jurisdiction over greenfield investments involving “foreign adversary parties” as well as critical technologies, critical infrastructure or sensitive personal data. Such investments would require mandatory filings.
Continuity expected among Committee staff
Although President-elect Trump will of course make a number of political appointments at senior levels within CFIUS, the bulk of the agency’s work is done by its career staff. We do not expect significant turnover of personnel here, and we believe that most of CFIUS’s priorities will remain unchanged. However, it is worth noting that during the first Trump administration, senior political appointees were frequently involved in the more difficult CFIUS cases, and we expect that to recur once the new government takes office.
We also note that the idea of adding the U.S. Department of Defense as a co-chair of CFIUS alongside the Treasury was floated in a report from the Heritage Foundation (authored by many of the President-elect’s leading advisers), which sets out a roadmap for Trump’s second term. It is unclear at this point whether this will happen, and if it did, whether it would materially impact the CFIUS review process. In any event, we expect Department of Defense (DoD) to continue to be heavily involved in any transactions that directly or indirectly touch key sectors, supply chains, and technologies that impact national security, such as quantum computers.
Bigger fines are anticipated for transaction parties that either miss mandatory filing obligations or make inaccurate statements in their submissions to CFIUS, while tougher conditions could be imposed on parties in order to obtain national security clearances for their deals. We also expect more rigorous monitoring following the closing of transactions to ensure compliance with national security agreements and other commitments made to CFIUS.
Under the new administration, transaction parties must continue carefully to assess whether their contemplated deals will trigger a mandatory filing obligation and whether voluntary filing may be warranted even in the absence of an express filing requirement. When assessing the prudence of a voluntary filing, parties should remember that CFIUS’s jurisdiction is perpetual and that national security risks are continually evolving such that a transaction that is safe today may be risky tomorrow.
They should also thoroughly assess their own positions (including activities of all affiliated entities, the identity and activities of key shareholders and ultimate beneficial owners) in order to anticipate and prepare for potential inquiries from CFIUS.
Tariffs could be deployed ideologically and transactionally
Trump has been vocal in his desire to impose higher import tariffs in support of a range of policy goals, including border security, reducing the U.S. trade deficit and supporting domestic manufacturing. However, analysts have warned that such a step – coupled with the potential impact of the proposed tightening of immigration laws – would undermine his broader economic goals.
Some Republicans are already pushing for a more nuanced approach to the incoming administration’s trade policy. It’s possible that the President-elect could use tariffs in pursuit of more advantageous trade deals, and may also look to aggressively deploy sanctions and export control enforcement as a foreign policy tool. Here, some analysts have suggested that Trump may be willing to recalibrate Russia sanctions as a bargaining chip to end the war in Ukraine.
The use of secondary sanctions – i.e. sanctions imposed by the U.S. on, among others, non-U.S. persons for non-U.S. activities – is set to increase in relation to entities perceived to be sidestepping Russia sanctions, particularly where they involve Chinese parties. Tougher sanctions on Iran, Venezuela and companies tied to the Chinese military are also anticipated.
This will create significant challenges for global businesses where U.S. sanctions diverge from those imposed by other jurisdictions such as the U.K. and the EU. Businesses and financial institutions with material cross-border operations are advised to ensure they have a full and detailed understanding of their sanctions exposure in relation to their borrowers, supply chains, investors and joint venture partners, and to be prepared to pivot as the landscape evolves.
More pro-deal, principles-led approach to merger review
The antitrust environment under Trump is expected to become more pro-deal and pro-business. However, the U.S. antitrust agencies, the Department of Justice Antitrust Division (Antitrust Division) and the Federal Trade Commission (FTC), will not take a totally laissez-faire approach.
This is in part because influential figures in the Republican Party are aligned with progressive Democrats in their skepticism of big business. This is particularly true of Big Tech, where we expect to see continued activity from the Antitrust Division and the FTC over the next four years.
During the previous Trump administration, the Antitrust Division brought the first significant competition case of the internet era when it filed a landmark lawsuit against Google alleging it held an illegal monopoly in online search. Moreover, others set to have significant roles in the incoming administration are vocal critics of the tech giants, not only Vice President-elect J D Vance but also Brendan Carr, Trump’s choice to head the Federal Communications Commission.
The President-elect's recent decision to make current Republican FTC Commissioner Andrew Ferguson the Chair of the Commission, and to nominate Gail Slater, current economic policy advisor to Vance, as the head of the Antitrust Division, further signal both a continued focus on Big Tech antitrust enforcement and a more balanced approach to merger enforcement.
Slater is an antitrust veteran who has worked in private practice and at the FTC. She also served as a tech policy adviser on the National Economic Council during President Trump's first term. Commissioner Ferguson, who has been at the FTC since March 2024, was previously the Solicitor General of Virginia and prior to that, among other experience, was an antitrust lawyer in private practice.
While at the FTC, he has dissented from some of the current Chair's challenges and policies. Trump has also already indicated that he intends to nominate Mark Meador, another antitrust veteran, to be the fifth FTC Commissioner. Assuming he is confirmed by the Senate, Meador will give the Republicans a majority at the FTC.
We expect the healthcare and pharmaceutical industries to continue to be a focus of antitrust scrutiny. In 2022, the FTC launched an investigation into pharmacy benefit managers (the intermediaries that sit between insurance companies and patients who are receiving prescription drugs), expressing its concern over their “enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay”. There is bipartisan support for continuing attention on their activities.
Partial retreat from the 2023 merger guidelines
We anticipate that the new Trump government will depart from some of the more aggressive enforcement positions of the Biden administration, which were reflected in the revised merger guidelines published by the Antitrust Division and the FTC in 2023. These stated that business combinations resulting in a market share of 30% were presumptively anticompetitive, and while this has a basis in 60-year-old case law (United States vs Philadelphia National Bank) and is typically cited when the agencies sue to challenge a deal, it had not in recent years been used as the sole basis to justify an investigation.
We also expect greater leniency when evaluating vertical mergers, with the enforcement agencies likely to be more receptive to arguments around the pro-competitive efficiency benefits of vertical integration. However, we still anticipate scrutiny where one of the parties has substantial market power, as well as continued skepticism of behavioral remedies.
Additionally, the new administration is likely to be less interested in investigating labor-based theories of harm (i.e., whether a deal gives the merged business too much power over employees). We also expect a step back from the current administration’s general suspicion of transactions involving private equity buyers.
Likely shift on remedies will make deals easier to execute
We expect the Antitrust Division and the FTC to take a more favorable view of the efficacy of structural remedies, which will give merging parties a clearer path to resolving antitrust concerns with negotiated remedies. The current administration has been unusually skeptical of remedies compared with prior governments (both Democratic and Republican) and this likely shift will be another positive change for dealmakers.
Recent reforms of HSR filing regime set to survive transition
The FTC recently published a series of reforms to the Hart-Scott-Rodino (HSR) pre-merger reporting regime which are scheduled to come into effect on February 10, 2025. The proposals align the information required in a U.S. merger control filing more closely with other major jurisdictions globally by requiring the submission of a substantial amount of additional detail, including about horizontal overlaps and vertical relationships. The changes may now be delayed until mid-March, as it is traditional for new administrations to issue a freeze on pending rule changes to allow for a fuller review.
Notably, the new pending rules were adopted by a unanimous vote of all five current FTC commissioners (three Democrats and two Republicans). To secure the support of the Republicans, the Democratic commissioners agreed to scale back some of the original proposal’s more controversial provisions.
Since the adopted proposal was a result of bipartisan compromise, our expectation is that the reforms will be implemented largely in their current form later in 2025.
Tax reforms expected
With Republicans in control of the House and Senate, and key elements of the first Trump administration’s signature 2017 tax reform act expiring or phasing out at the end of 2025, the incoming administration has earmarked tax reform as a top legislative priority.
Among the new government’s focus areas will be extending or reinstating business-friendly provisions of the 2017 tax act, including the qualified business income deduction for passthroughs, increased bonus depreciation, and the more generous pre-2022 limitation on interest deductibility.
President-elect Trump has also expressed a desire to further reduce the corporate income tax rate from 21% to 20%, or 15% for companies that manufacture products in the United States. However, there is significant uncertainty as to which of Trump’s many tax-related campaign promises he will pursue once in office. In addition, Congressional Republicans are expected to use budget reconciliation to pass any tax reform bill, avoiding the possibility of a Democratic filibuster but leaving open the question of how to pay for any further tax cuts or extensions.
The effect of possible tax reform on M&A activity is unclear. On the one hand, uncertainty regarding the timing, scope and content of tax reform legislation could, at the margins, have a dampening effect on activity as dealmakers await the enactment of final legislation. On the other, an expectation of further tax cuts – including a reduction in the corporate rate – may stimulate dealmaking activity.
Although the incoming administration’s tax reform proposals currently are too hypothetical to affect drafting practice in M&A agreements, it is possible that this will change as reform proposals crystalize into concrete draft legislation – particularly as regards any reduction in the corporate rate (for example, on tax indemnities and valuing tax benefits).
