February 27, 2025 - The new administration flooded all of us with executive orders in its first month. Only time will tell which are enacted, but the nonpartisan view is that most are intended to inspire economic growth, even if some policies are inflationary.

Our analysis is that all these policies combined will probably create a hot mergers and acquisition (M&A) market in 2025. The combination of the promise of lower corporate taxes, protectionism, and an administration generally favorable to acquisitions is bound to release much of the $2.6 trillion in so-called private equity “dry powder.” It will also give manufacturers and distributors a reason to make acquisitions of their own.

In this article, we examine the impacts of the proposed policies and discuss scenarios.

Lower Corporate Taxes Would Mean Greater Cash Reserves

If the administration does lower the corporate tax rate from its current 21% to the proposed 15%, companies will have more cash to spend on mergers and acquisitions. Companies have been growing steadily more profitable over the past two decades and companies and private equity firms are looking to invest this surplus in inorganic growth.

In the manufacturing and distribution industry, M&A could be a way to strengthen supply chains. As The Economist has put it, the world is entering a post-global era. Trade routes are growing less stable, tariffs are shifting where companies are looking to source product and trade partnerships are becoming less durable. Many companies want to operate onshore or near-shore, which could include joint ventures with overseas suppliers at facilities in the U.S.

Protectionism Would Only Encourage Domestic M&A

The new administration is proposing protectionist policies, such as tariffs. While the consumers of countries that launch tariffs tend to pay the price ultimately, these policies can create opportunities for some.

“Tariffs could be detrimental for international deals while, at the same time, a boost to local M&A market as companies look to onshore their critical supply chain needs, reduce global risks, and control their costs,” says Harper Garrett, Director in Citrin Cooperman’s Transaction Advisory Practice.

Every manufacturer or distributor with an international supply chain should conduct scenario planning. Those most exposed to the cost of construction materials, equipment manufacturing, and unskilled labor should how the friendlier M&A market this year can help.

The Administration Will Likely Be Favorable to M&A

In our recent webinar, Dr. Anirban Basu, Chairman and CEO of the Sage Policy Group, suggested that the new administration might have approved the mega-deal that got blocked last year, where JetBlue offered to buy Spirit Airlines.

“This new administration has a much more favorable outlook on M&A,” says Dr. Basu. "I think we’ll see a ton of consolidation in many industries. You’re also going to see more corporate power.”

More favorable regulation coincides with a historic level of dry powder — $2.6 trillion in uninvested capital in the private equity industry. Those limited partners are hungry for liquidity and pressure managing partners to do deals. The result will likely be much more aggressive M&A activity, assuming that more daring deals are permissible.

The Rising Cost of Labor and Falling Cost of Technology

Stronger border enforcement and deportations are likely to raise the cost of labor. At the same time, the administration wants to encourage onshoring. Where will manufacturers and distributors find additional labor? Very likely, they will increase their investments in technology.

The International Monetary Fund estimates artificial intelligence (AI) alone will affect 40% of jobs worldwide. While AI so far looks more likely to disrupt “cognitive” and non-routine desk work, not blue-collar work, it may help ease the pain. Among the examples shared on our recent webinar:

• AI can transcribe field workers’ notes more accurately and automatically
• AI can track cash cycles across software like CRM and ERP systems
• AI order management systems can track and report on inventory
• Autonomous drones can survey facilities
• Autonomous vehicles can run more routes with less downtime

Further, AI technology is advancing more rapidly than expected. U.S. tech stocks were upended by the recent news that a Chinese startup had built a model to rival OpenAI’s ChatGPT for a reportedly mere $5.6 million.

Combine this innovation with the fact that cloud computing is now the default, and we will likely see more opportunities for manufacturers and distributors to use technology to ease labor pains. For example, this year, Intuit’s QuickBooks will cease support for its desktop applications. Most ERPs are now in the cloud. All that digitally stored data can be used for AI.

Where Will You Find M&A Opportunities This Year?

We strongly recommend every manufacturer and distributor consider how M&A can be a tool for solving near-term supply and labor shortages. Can your company merge to integrate vertically? Launch a joint partnership with an overseas supplier here in the U.S.? Acquire a distribution network to ensure you have priority? Opportunities will abound, and you may want to launch a strike team to run and evaluate the numbers.

If you would like help calculating the financial and accounting impact of your M&A strategy, please contact our Manufacturing and Distribution Industry Practice.

Watch our recent webinar for manufacturers and distributors, Navigating the Future.