Jacob Sonenshine

Mergers and acquisitions were dead earlier this year. For the first couple of months, investors were hesitant to put money to work and borrow more ahead of President Donald Trump's tariffs, which crimp demand for goods and services. By late February, global M&A for 2025 had totaled $412 billion, according to London Stock Exchange Group, putting deals on track to hit $2.6 trillion for the entire year. That would have been down 24% year over year from the $3.4 trillion 2024 total.

Then, things turned on a dime. Trump paused large swaths of tariffs, convincing executives that the White House will steer clear of imposing the worst case scenario for tariffs. Now, companies have a better idea of the level of demand to expect. By late May, global deal value reached $1.44 trillion, on pace to hit $3.7 trillion for the year. That would be a 9% rise from last year.

Simply put, companies had been waiting to put tons of more money into acquisitions, and then unleashed just over $1 trillion in just a few months.

The industrials sector, while only completing a few billion dollars of deals since the end of February, have announced $172 billion of transactions to be closed this year, according to our calculations using Bloomberg data. Fourteen of the 58 announced deals, or a quarter of the total, happened in April and May, coinciding with the recent surge in broader deal activity.

The takeaway for investors is that the global economy remains in a good-enough place. Industrials' sales and earnings, broadly speaking, are economically-sensitive, meaning they are higher when the economy grows faster and lower when growth slows. That industrials are driving a chunk of the deal activity -- and that they've committed so much money -- demonstrates these companies are confident in the earnings their newfound assets can produce. They're confident in the economy.

That's partly why the Industrial Select Sector SPDR exchange-traded fund is up 28% from its low point of the year, hit in early April. They're close to breaking out to new highs, as their earnings grow.

Technology companies are transacting. With $265 billion of deal value of the year, tech ranks as the second-largest sector for M&A, according to London Stock Exchange Group.

Salesforce just agreed to buy Informatica for $25 a share, an $8 billion deal.

For Informatica, a cloud-services provider that uses artificial intelligence to enhance its product, the deal was a savior. Since news of the deal broke last week, the stock is up 26% because Salesforce is paying a significant premium to the stock price from just before the acquisition news. Informatica was one of many beaten-down small-capitalization stocks -- collapsing to the teens from a $29 initial offering price in October 2021. Salesforce's bid offers a reprieve to investors.

For Salesforce, the deal's strategic. It will access Informatica's tech assets, and more than 5,000 business customers from Informatica, so Salesforce can provide more powerful and more secure AI agents. The combined company's customers will be able to target business opportunities more efficiently. The acquisition will solidify Salesforce's position as one of the leading enterprise-software companies, and continue to lift subscription prices.

The deal, on the surface, would appear to immediately add the nearly $1.7 billion in 2025 sales analysts had expected for Informatica, and $553 million in operating profit, lifting Salesforce's expected operating profit of $13.8 billion by about 4%. But Wall Street expects cost synergies, as Salesforce can get rid of redundant costs currently seen at Informatica. This means the deal would add more than 4% to its profits.

"We view this deal as a smart and strategic deal for customer acquisition," writes Wedbush Securities analyst Dan Ives, who sees at least 15% worth of cost synergies.

One takeaway: Big Tech companies don't see much deterioration on the way from customers' technology budgets, and they're willing to invest. The software industry is solid. The iShares Expanded Tech-Software Sector ETF is up 29% from a 2025 low hit in early April.

Also, there could be many small-cap tech companies ripe to be bought out, especially if tech M&A remains on track to reach the $676 billion this year that it's currently on pace for.

The iShares Russell 2000 Growth ETF, home to many smaller tech companies, is still 14% below a record high hit at the end of November. The average market cap of companies in the fund is $4 billion, plenty small enough to be acquired by large tech companies.

Write to Jacob Sonenshine at jacob.sonenshine@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 28, 2025 12:53 ET (16:53 GMT)

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