Merger bait surges as stocks and CEO confidence rise
CEOs are feeling good enough to start making some bad decisions.
There’s a lot for stock-market bulls to like in today’s markets, with everything from Big Tech to small caps posting solid gains.
But one of areas of thematic strength, at least looking at Goldman Sachs’ baskets of thematically organized stocks, is potential M&A candidates in the US.
This basket, which is made up of about 60 stocks that Goldman analysts think have a 15% chance of being acquired over the next year to 18 months, is up about 1.8% at last glance, outpacing the overall S&P 500.
True, they’re a volatile bunch of relatively small companies skewing heavily toward biotech and software. Members like Wolfspeed, Denali Therapeutics, and Mineralys Therapeutics posted big jumps on the day.
But even beyond such micro targets, the big-picture outlook for dealmaking is expected to be a bright spot for the market in 2025.
After the best two-year stretch since the late 1990s for markets, stocks are well juiced to be used as currencies in deals.
Moreover, CEO confidence is at its highest level of the last couple years, a signal that often indicates they’re about to make some power moves.
And from their perspective, the timing may look perfect. Lina Khan’s stint at the FTC — and its more stringent approach to antitrust compared to recent administrations — is coming to a close.
As always, investment bankers will be ready to advocate that bosses are exactly right to pull the trigger on transformative deals.
In fact, executives at Goldman Sachs — a major employer of such financiers, which itself reported stellar results on Wednesday — told analysts that the deals pipeline is filling right up and that it should be a good year for fee-laden corporate buyouts.
“There’s been a meaningful pickup in large-cap M&A dialogue and inquiry,” Goldman CEO David Solomon told analysts, adding, “And we continue to see strong positive backlog.”
Perhaps unsurprisingly, the bank’s strategists are singing from a similar hymnal as the CEO.
“Those making the longer horizon decisions (M&A, buybacks, public offerings, etc.) are as positive as they have been in years,” wrote Brian Garrett, head of equity execution on the cross-asset sales desk, who highlighted M&A candidates as an attractive thematic trade.
