Axios Pro Rata

Dealmakers are feeling frisky, shouting from the rooftops that Donald Trump’s election will lead to a surge in new merger activity.

• Sentiment often sparks strategy, so it’s reasonable to believe in the animal spirits.
• But it’s also fair to sprinkle in some skepticism.

Reality check: America’s deal market isn’t in distress.

• U.S. M&A dollar volume was up 20% year-over-year through the end of Q3, according to LSEG. Private equity-backed deal value for U.S. targets was up 45%.
• Moreover, average annual dollar volume has been higher under Biden than it was under Trump, even if you exclude COVID-tinged 2020. Not a knock on Trump’s tenure — just some context.
• Oh, and we’re more than two years into a bull stock market.

Zoom in: One major argument for a deal boom is that Trump will be much softer on antitrust than was Biden, whose FTC and DOJ arguably killed lots of deals in their cribs. Probably, but only to a point.

• Trump tried to block a lot more mergers than people seem to remember, in a wide array of industries. And he’s never been friendly toward the Big Tech companies that have been hesitant to buy VC-backed companies.
• Also, don’t be surprised if Trump’s antitrust cops continue their existing investigations, much like what happened last time with the proposed DraftKings-FanDuel merger.

Macro look: Interest rates are a key merger driver, particularly for private equity, and they have been coming down (another 25bp cut yesterday).

• But Trump is also promising massive tariffs that could cause the Fed to slow its roll, and Jay Powell says he won’t leave before his term expires in 2026 (even if Trump asks him to).
• The only thing worse for deal markets than stubborn rates would be a noisy clash over who controls monetary policy.

Micro look: Finally, there’s the plight of venture capital, which is gummed up because of too few distributions.

• Hard to see how a new administration helps here. Part of the trouble is a herd of unicorns that got stranded when they took too much money at inflated valuations. A lot of them are dead but just don’t know it yet.
• The other issue is that private markets have become self-sustaining, providing winners with so much later-stage funding that there’s no need to ever go public (which is where the top returns usually come from). Again, not a federal policy problem.

The bottom line: Dealmakers are talking up their books. Let’s give it some time before declaring them bestsellers.

Venture Capital Deals

Original article: https://www.axios.com/newsletters/axios-pro-rata-d6fbbce5-f435-4cf6-95a7-2aa5eaef6b6d.html