How Might an M&A Surge Under Trump Impact Supply Chains?

Ahead of Donald Trump's return to office, investments banks are said to be preparing for a surge in M&A activity following a period of stagnation. 

Factors like de-regulation, manipulated markets and a potential decline in interest rates could fuel a pick-up in deal volume – and, as has been seen in the past, supply chain and operations are some of the most significant cost levers a company can pull.

Here, Dan Luttner, Managing Partner of MorganFranklin Consulting, explains how Trump's return could impact supply chain's relationship with private equity. 

Why might the incoming Trump administration fuel a pick-up in private equity deal volume? 

Signs are pointing to a pick-up in private equity deal volume based on both historical evidence and the state of today’s economic environment. Historically, when a Republican president takes office, we start to see an increase in free market economic policies and a looser regulatory environment. More specifically, the Biden administration's enforcement of stricter Federal Trade Commission (FTC) and Department of Justice (DOJ) reviews has created a temporary slowdown, but a more M&A-friendly environment is anticipated.

We know based on Donald Trump’s last presidential term that he is well acquainted with Wall Street and private equity. If you combine that with the high amount of institutional capital on the sidelines over the last few years waiting to see the results of this election cycle, we're seeing a pent-up demand for investments across industries. 

How do you foresee this impacting supply chains?  

We’re hearing investment banks, especially M&A groups, are preparing for a surge in deal activity following a period of stagnation. As a result, many of these companies will own two supply chains coming into the same organisation, which means there will be opportunities to streamline operations. 

How can companies prop up their supply chains so operations don't stall due to M&A activity? 

As a result of these mergers, business leaders will have to segment and isolate which portions of an existing supply chain are going to be taken away into the new firm versus remaining into the existing firm. The success or failure of an M&A activity is in the integration of the operations between the two firms. No matter how good a deal looks on paper, if you can’t properly integrate the operations, the likelihood of success will drastically plummet. Companies that recognise they are acquisition targets often benefit from having competitive and strategic supply chain organisations, as these traits significantly increase the likelihood of receiving higher valuation multiples.  

From our experience working with more than 400 businesses, one key indicator of supply chain excellence is an organisation’s ability to predict future demand, enabling accurate delivery timelines and cost efficiency. Additionally, when evaluating firms, identifying synergies such as shared customers, vendors and third-party logistics providers can greatly streamline the integration process. 

What can be done to rationalise and balance multiple supply chains during a carve-out? 

The first step is to understand how intertwined a business is with the overall enterprise. If variables of the exiting company like customers and products are clearly distinct, that can make things much easier. However, if things are more blended, it can be murkier and more expensive. This is why it’s critical to establish some concrete definitions such as who drives the supply chain and which systems do they use to drive it.

Often, sophisticated supply chains leverage complex platforms that require the funds and well-trained staff to maintain it. Underestimating that can put a strain on the carved out firm or acquirer, leading to additional costs, penalties and possibly a failed integration. This is where companies need to take an honest look at three things: their people, processes and technology. Do we need to pivot to new technology, modify our processes and do we have the right people who can adapt to these changes? 

How can private equity leverage supply chains to strengthen value creation?  

A supply chain is not a back-office cost centre that solely takes orders and delivers goods. When it’s done well, the supply chain is a growth engine, a sustainable competitive advantage, and an overall revenue driver.  

First, a business should have a clear answer to the question, "'where does the supply chain currently live?”. Is it under the COO, CFO or someone else? Identify a singular leader, because that will help clearly define the expectation of what a successful in-house supply chain centre of excellence looks like for the company and their overall business objectives.  

The next step that fund managers can take is to analyse portfolio companies and see how strategic investments can be made in automation and data analytics tools to help organisations streamline decision-making, optimise staff efficiency and enhance supply chain operations.  

Finally, a trend we have been seeing that private equity could also consider to strengthen value creation is to see if it makes sense to buy the entire supply chain. Omnichannel retail is reshaping supply chains by merging traditional roles of manufacturers, distributors and retailers, enabling customers to buy directly from company websites. Companies that control key parts of their supply chain, such as manufacturing or sourcing, gain a competitive edge by reducing costs and enhancing resilience against challenges like pandemic disruptions or geopolitical tensions. This trend is evident in industries like grocery, where leading firms are acquiring farms and bakeries to secure their supply chain.  

For private equity firms, success lies in aligning strategies with the expected exit and leveraging synergies in supply chains through strategic mergers and acquisitions to extract additional value. 

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