What’s the likely impact for dealmaking of the incoming U.S. administration?
Ben Mandell: After the election, we saw an immediate strong reaction in the U.S. markets to the positive, including uplift for many of the banks in anticipation of a stronger deal environment.
Larry Grafstein: When you look at the market reaction, you see a hope that Trump will be pragmatic overall vis-à-vis economic policy. Secondly, there’s a recognition of a reset of the cost of capital.
Hank Johnson: We’re optimistic, against a backdrop of lower corporate tax rates and anticipation of a more business-friendly environment. At the same time, we have to be cautious around the impact of tariffs, new Hart-Scott-Rodino (HSR) Act rules, and some of the presidential appointments.
Mark Rushton: European investors have taken a more cautious view. There is the impact of tariffs, not just within Europe – if the tariffs in China are higher, that will have a direct impact on the European economy.
Mandell: The hope is that not every industry and country is painted with the same brush but if Trump makes good on his promise to increase tariffs by 25%, that will almost certainly throw the Canadian economy into a recession.
The Canadian dollar is at a four-year low against the U.S. dollar, making Canadian goods more affordable and partially offsetting tariff impacts. However, it also raises the cost of imports. This dynamic, combined with a strong U.S. dollar, high U.S. valuations, and lower financing rates in Canada, has the potential to drive increased cross-border activity into Canada.
“We’re optimistic, against a backdrop of lower corporate tax rates and anticipation of a more business-friendly environment.”
Hank Johnson, U.S. Co-Head of M&A
What about the effect on regulation?
Grafstein: The regulatory environment is definitely going to be lightening up while the Republicans control both Congress and the White House.
The Biden administration’s whole-of-government approach to antitrust is not going to be followed by the Trump administration. There’s still a certain amount of skepticism and concern about the power of big tech, so that area of antitrust enforcement won’t necessarily diminish.
What are the prospects for private equity deals in 2025?
Johnson: Private equity activity is recovering. There was an increase in take-privates over the past year, which is encouraging.
The HSR changes will have more detailed filing requirements, so it’ll be a longer path from signing to closing. But we are very constructive on the outlook for private equity.
Rushton: In Europe we’ve seen a significant improvement in sponsor activity. The buyer-seller evaluation gap persists, but it is narrowing. A lot of the transactions we’ve been involved with recently have included some type of earnout structure to bridge that gap.
Sponsors have been selective in auction processes. We’ve seen higher dropout rates than historically seen, and there’s been a shift to bilateral discussions. But where there are high-quality assets, we have actually seen quite a lot of competition.
“Sponsors have been selective in auction processes: we’ve seen higher dropout rates and a shift to bilateral discussions.”
Mark Rushton, European Co-Head of M&A, RBC Capital Markets
What are the key sectors likely to drive activity?
Johnson: One sector that touches on all the different geographies is demands on the grid from AI, data centers and even Bitcoin. These are growth engines that will drive a lot of M&A.
The demands for energy will be from both a generation and distribution standpoint, but there’s also going to be a lot of transactions in the picks and shovels – the suppliers making it all happen.
Rushton: In Europe we’re seeing increased activity in FIG, industrials and services. Home building is another key area, and we can see consolidation occurring there.
Public-to-private activity has been a real focus, especially given the relatively lower valuations of European stocks compared to North America.
Grafstein: FIG is a broad sector at RBC. Alongside integrating the major HSBC Canada acquisition, FIG encompasses more than just banks—it includes insurance and asset management. Notably, asset managers face a generational shift as those shaped by decades of growth and years of near-zero interest rates now reassess their strategies for the future.
On the policy side, the Trump administration is talking about stimulating domestic manufacturing in the U.S. which could lead to an uptick M&A activity.
Mandell: There is still uncertainty swirling around some of the new U.S. administration’s proposed policy decisions—their timing, the individuals involved, and the impact they’ll have on various sectors. Adding to this are macroeconomic factors like rates and inflation, which continue to influence corporate confidence and M&A activity.
“There is still uncertainty around the impact of new policy decisions, and macroeconomic factors like rates and inflation, which continue to influence corporate confidence and M&A activity.”
Ben Mandell, Head, Global M&A, RBC Capital Markets
Grafstein: Inflation's a tough genie to put back in the bottle. If that turns against us and the market breaks, that can certainly be a damper on activity. Of course, there's always geopolitical events that are beyond anyone's control, and we all know that we're still in a volatile world geopolitically.
Is shareholder activism on the rise?
Grafstein: Activism is here to stay – it’s ubiquitous. There’s no stigma any more to an activist or buy-side investor coming out against a deal aggressively with very forceful advocacy. There’s also much less deference to the business judgment of management and boards. There’s now a broader recognition, certainly in corporate America and maybe Canada, that getting out in front of these things is the right way to do it, and that sometimes you’re going to have to compromise with aggressive shareholders.
An underlying fundamental driving activism is that it’s been hard for active fund managers, in contrast to passive index managers, to outperform the market. So in many cases, activists are the symptom, not the cause: they are reflecting discontent.
Mandell: What we've found is that activist situations are like icebergs — what’s announced is just the tip. There is much more happening beneath the surface as activists run their screens. A lot of these campaigns tend to focus on looking at trading performance, operational execution, balance sheet strength, governance and the portfolio mix.
“There’s no stigma any more to an activist or buy-side investor coming out against a deal aggressively with very forceful advocacy.”
Larry Grafstein, Deputy Chair of Global Investment Banking, RBC Capital Markets
Rushton: 2023 was the busiest year for European activism; 2024 is tracking to similar levels. Where we see it very commonly now is within M&A situations. We’ve got significant experience of advising boards when activists come in when a deal is announced and look to shake the tree.
Mandell: Where we've done well by our clients is in thinking like an activist. This involves conducting vulnerability assessments and utilizing our global platform of M&A, ECM, sector specialists to drive these conversations.
