Industrials and Banks Tipped to Lead M&A
Analysts at Morgan Stanley expect the industrials and banking sectors to drive the next wave of M&A activity. This forecast suggests a market rotation toward sectors with strong cash flows and defensive characteristics. The shift may be driven by ongoing market volatility and macroeconomic uncertainty, pushing dealmakers toward more traditional industries.
- In the industrials sector, dealmaking is driven by the need to reconfigure supply chains, align with national security priorities, and invest in automation and digitalization. There's also a focus on infrastructure to support the energy transition and AI-driven demand. - Banking consolidation is propelled by the need for scale to increase efficiency, invest in technology to compete with fintech, and navigate a changing regulatory environment. The number of banking deals surged in 2025 after a period of stagnation. - The overall M&A market saw a significant rebound in 2025, with global deal value rising sharply, driven by an increase in "megadeals" valued over $10 billion. Strategic buyers, rather than private equity, have accounted for the majority of deal value in recent quarters. - A key trend in industrial M&A is the focus on acquiring specific capabilities and technologies rather than just increasing scale. Cross-border dealmaking has been robust, with the U.S. being a primary target for inbound investment due to its relative economic stability. - In financial services, private credit is playing a more significant role, with alternative funds financing an increasing portion of transactions and becoming acquisition targets themselves for large asset managers. - Notable recent transactions in the industrials space include Union Pacific's proposed $85 billion merger with Norfolk Southern and Baker Hughes' $13.6 billion acquisition of Chart Industries. - Major deals in the banking sector have been characterized by domestic consolidation, such as Fifth Third Bancorp's $10.9 billion proposed acquisition of Comerica and Huntington Bancshares' $7.4 billion deal for Cadence Bank. - Private equity sponsors have been active, with a notable increase in sponsor-led take-private deals in North America. PE firms are entering 2026 with record levels of capital to deploy.
