By Ian Salisbury

The market's long M&A winter could finally be about to thaw. It's good news for investment-banking stocks.

This was supposed to be a great year for mergers and acquisitions. Investors believed President Donald Trump's deregulatory bent would unleash a torrent of deals that had been blocked by concern over how the Biden administration might react.

So far, it hasn't worked out that way, in large part because Trump's tariffs threw markets into chaos. Corporate executives scrambling to deal with the fallout put big decisions like merger deals on hold.

Now, things finally seem to be getting back to normal. Trump moderated his tariff program, including a recent deal to slash levies on Chinese imports for 90 days while the two countries work out their differences.

The past week has brought a handful of headline-making announcements. Friday morning, the cable company Charter Communications said it planned to buy Cox Communications in a deal that valued its privately held rival at $34.5 billion. Thursday, Dick's Sporting Goods disclosed an agreement to acquire Foot Locker for $2.4 billion. And earlier in the week, the online brokerage Robinhood said it would purchase WonderFi, a Canadian digital asset company, for 250 million Canadian dollars, or about $179 million.

Republicans' $3.7 trillion tax bill, currently winding its way through Congress, could give merger activity another boost. New legislation, an update of the 2017 Tax Cuts and Jobs Act, would help reduce uncertainty, especially because many provisions of the original bill are set to expire at the end of the year.

Some specific provisions of the new bill could also help directly. In a note Friday, Wolfe Research analyst Chris Senyek said current versions may allow companies to immediately claim depreciation expenses on newly-acquired equipment, restoring a popular feature of the 2017 bill that had been phasing out. "This would favor buying tangible asset heavy businesses," Senyek wrote. "If passed into law, we expect M&A activity to accelerate in a similar manner to 2018."

Hope for a potential M&A revival, and disappointment that prospects for one seemed to be fading, have sent financial services stocks on a roller-coaster ride. The Invesco KBW Bank ETF, an exchange-traded fund that tracks the sector, gained more than 15% between the start of November and Feb. 19, the day the market reached its record high, compared with a gain of just 7% for the S&P 500.

But those stocks have struggled since then as Trump's tariff agenda overshadowed other priorities like deregulation and tax cuts. In the past three months, the bank ETF has fallen more than 7%, compared with 3.4% for the overall market.

Major banks like JPMorgan Chase, Goldman Sachs, and Morgan Stanley would all be beneficiaries from a merger boom. But smaller names such as Lazard, Evercore, and Moelis, which represent something much closer to a pure play on the investment banking industry, could be bigger winners.

Shares of Evercore are down about 12% year to date, despite having rallied more than 30% in the past month. Just how tied is Evercore to the lackluster M&A space?

In the bank's latest quarterly earnings presentation, executives included a slide bragging that only about 60% of its revenue in the past five years came from advising on M&A deals. They said that during the first quarter, it had been less than 50%.

Evercore investors may indeed have felt reassured the company was diversifying its revenue sources away from M&A. But they would probably a lot happier if the merger market just picked up.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 16, 2025 14:12 ET (18:12 GMT)

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