Uncertainty surrounding the new administration’s policy agenda and the trajectory for interest rates is leading some dealmakers to feel somewhat gloomy about 2025.
Many private market funds plan on sitting on the sidelines rather than deploying capital, at least until the early part of next year.
“As I look into 2025, I don’t think it’s as rosy as people thought the morning after the election,” said Louis Lehot, a partner at Foley & Lardner, at a roundtable hosted by the law firm on Wednesday.
This week, President-elect Donald Trump nominated Gail Slater, a former adviser to Vice President-elect JD Vance, as the assistant attorney general for the Justice Department’s antitrust division. The appointment suggests the new administration will continue to crack down on tech behemoths, a position Trump emphasized in a social media post announcing the nomination.
Given that nomination, the M&A market won’t see an “opening of floodgates of activity,” Lehot said.
He added that distributions from funds will remain low, making LPs reluctant to meet capital calls.
He also doesn’t expect a “quick return to a rosy IPO market,” despite Trump picking a pro-business nominee, Paul Atkins, to head the Securities and Exchange Commission. US laws are punitive toward going public, and overcoming these barriers requires amendments to governing rules, not just a change of leadership, Lehot said.
Further, dealmakers are wary of a possible return of inflation resulting from expected policies on tariffs and deportations.
High inflation would put pressure on PE portfolios and prompt the Fed to pivot from cutting interest rates, while a sustained decrease in rates is critical for deal activity to spring back to life.
Even if inflation is reined in, Trump’s protectionist policies may also harm certain industries including manufacturing, agriculture and hospitality.
“That’s one other big unknown that people are going to be looking for in the next three to six months to see how that (policy shift) plays out,” said Brian Wheeler, a partner at the law firm.
GPs are hesitant to commit to deals because of the many variables that could swing the market.
“I’m hearing more and more term sheets, but not many of them moving forward,” Wheeler said.
That being said, there are some silver linings. Trump’s pro-growth agenda, including deregulation and tax cuts, could perk up the deal market, the attorneys said. And they expect mergers to encounter fewer regulatory hurdles under the new administration.
“We are going to have a little bit of a slow start, and things will pick up nicely as we no longer have the uncertainty,” Lehot said.
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