While most of us would have hoped to begin 2025 with more certainty and visibility into the economy, this does not seem to be the case. From a macro level, many of us are expecting the new administration will have a positive effect on the business and regulatory environment; But understanding the specifics of this is where things become murky.

As sentiment among financial sponsors seems overwhelmingly bullish, some of this was already occurring before the election. Investors that had been sitting on the sidelines for years were already coming back, motivated by moderate declines in inflation and the first interest rate cut in years. LP pressure on private equity to recycle funds to not just show returns, but also continue the cycle of reinvestment, was playing into this dynamic. Traditional banks and senior lenders were returning to the market. Credit funds, which had enjoyed years in a high interest rate environment as they deployed funds for refinancing amid reduced acquisition activity, began finding themselves in a more competitive environment. And finally, there was, and continues to be, significant pent-up demand.

So, while it appears the stage has been set for robust transactional activity in 2025, with any new administration’s policies, there can be positives and negatives. Here are a few things we’ll be looking out for as we approach the new year and the new administration:

• The promise of tax cuts could have a positive impact as more money is left in the consumer’s pocket for discretionary spending. But all of this depends on which consumers are provided meaningful tax cuts. If proposed tax cuts only benefit high-earning taxpayers, the impact will be dilutive since these taxpayers can already afford to buy whatever they want without the tax cuts.

Moreover, to fund any tax cuts, the government will need to find money elsewhere to pay for them. President-elect Trump has appointed Elon Musk and Vivek Ramaswamy to head a Department of Government Efficiency (DOGE) designed to eliminate excess costs in what they consider to be a bloated government. If successful, this could offset lost revenue from the tax cuts.

• An increase on tariffs aimed at the country’s largest trading partners whom the U.S. relies on significantly for imports could have far-reaching implications. Larger tariffs on China, Mexico, Canada, and others could be passed on to the consumer, leading to higher inflation. The administration also runs the risk of starting trade wars as trading partners may look to respond. Many believe the threat of tariffs will be used as a negotiating tactic as part of broader discussions, and the impact will not be as significant as some may think.

But if tariffs are enacted, they could lead to supply chain disruption as businesses may seek alternative sources of supply and relocate production facilities to lower costs. During the pandemic, we saw the impact of supply chain disruption. The last 12 -18 months have been a recovery period from that disruption. Any tariff-driven increases in costs of goods may ultimately be passed onto the consumer.

• President-elect Trump is again targeting the border crisis and immigration, much like he did during his first term. The border is a major concern for the country, with billions of dollars spent by the Biden administration to address illegal immigration issues. Balancing a sensible immigration policy with tougher border controls is going to be key as the new administration cannot stymie innovation and growth by not allowing people to immigrate. Also, the country relies heavily on migrant workers to supplement the labor force required for many different industries. Imagine the impact on construction, agriculture, and food processing, residential and commercial services, etc. if companies needed to employ a skilled, higher-wage workforce to replace migrant workers. There is little doubt the higher costs would be passed onto consumers of these services which, as mentioned, would drive inflation upward and offset the benefit of any tax cuts.

• Capital  markets regulation is likely to be relaxed under the new administration. This would occur not only through DOGE, but also as a result of a philosophical view that leans more towards a free market and capitalistic economy. We expect this will increase M&A activity including a more robust IPO market. Assuming this does occur, a more robust IPO market will enable businesses to raise money for innovation, R&D, growth, and expansion; and would also allow private equity firms to consider additional avenues for exits. The flip side of this is that, in the past, a relaxed regulatory environment has empowered more bad actors and businesses that should not be seeking the public markets as an avenue to raise money or exit.

The first six months of 2025 will be very telling as to how the aforementioned factors play out. Hopefully, for those of us in the deal-making community, the past 18 months will be in the rear-view mirror, and we can look forward to a robust M&A environment.