Banker sees healthy M&A, IPO deal pipeline as private-equity firms look to deploy cash

By Steve Gelsi

Citizens Financial's Don McCree says optimism has returned to the market as interest rates have stabilized

The dealmaking pipeline for mergers and well as initial public offerings continues to improve from a year ago as private-equity firms and middle-market businesses gear up to transact, a high-ranking banker told MarketWatch.

"It feels so much better than it has for the past couple of years," said Don McCree, vice chairman and head of commercial banking at Citizens Financial Group Inc. (CFG) "The mood is really good, with fears of a recession subsiding. Companies are doing well and private-equity firms are become more comfortable. Interest rates have peaked."

After one of the slowest dealmaking periods in decades since the Fed started hiking up interest rates in 2022, private-equity firms have amassed roughly $2.5 trillion capital to deploy, while private-capital markets are starting to recover on the heels of a rally in publicly traded equities, McCree noted.

He said he doesn't expect the increased pace to slow down amid the uncertainty of the U.S. presidential election because both political candidates remain well known to dealmakers, with less uncertainty regardless of the outcome.

If Donald Trump wins, dealmaking could gain more traction because of an expectation for a lighter regulatory touch on merger review and other matters, McCree said, compared to the Biden administration's proposals to increase scrutiny of banks. But Trump could end up raising tariffs, which could make cross-border transactions more challenging, he added.

Whatever the outcome, dealmakers remains more concerned about the cost of labor and potential supply-chain constraints than they are about geopolitical issues, McCree said.

IPOs remain bullish as well, based on Wall Street's warm reception for the debut of Reddit Inc. (RDDT) last month. Citizens Financial was one of the banks that worked on the underwriting team for the deal.

McCree's optimism stems partly from Citizens' recent survey of 538 small and midsize businesses. Seventy-two percent of the survey pool said they see private-equity firms as a source for potential partnerships or capital in the coming year.

Sixty-one percent of the survey pool said they expect to add talent in 2024, and 40% said they may hire more people than they did in 2023.

A relatively small number, only 9%, said they expect the U.S. election cycle to have a negative impact on growth plans, while 64% said they expect elections to benefit growth.

Also read: Citizens Financial Group gets an upgrade as analyst sifts through regional-banking stocks

-Steve Gelsi

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04-02-24 1615ET

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