Companies are making fewer and smaller deals in the U.S. as they wait for action on the Trump administration's plans, especially on tax reform.
"I think there's uncertainty. The tax policies, what's going to happen with repatriation of foreign cash, also what's going to happen with Dodd-Frank, a little bit of uncertainty whether or not they can resolve these by the third quarter," said Richard Peterson, principal analyst at S&P Global Market Intelligence.
His data showed the number of U.S.-targeted deals from Jan. 1 to Wednesday — just less than half a year — has fallen to its lowest since 2013 at 8,210. That is several hundred short of the 8,939 announced agreements to purchase U.S. firms in the same period last year.
The size of those deals also has fallen — just five announced corporate tie-ups so far this year topped $10 billion in value, versus 10 deals worth more than $10 billion in the same period last year, Peterson said.
U.S. stocks have climbed to record highs and business sentiment has risen on hopes the Trump administration's proposals for tax reform, deregulation and infrastructure spending could boost economic growth. Delays in passing a bill on health care have dimmed hopes of getting tax reform done this year, although Senate GOP leaders finally released their health-care reform bill Thursday and hope to vote on it before the July Fourth holiday.
"Arguably some of the dry powder sitting out there is waiting for tax reform," said UHY Advisors managing director Ed Pratesi, who works with firms in the low and middle markets.
Dealmaking has stagnated in the last few months despite the quickest start to a year since 2010, record levels of capital at private equity funds and companies flush with buying power from high stock prices.
Analysts also pointed to a decline in Chinese purchases of U.S. firms due to increased restrictions from Beijing on overseas capital flight. Chinese firms have announced $6.73 billion in acquisitions of U.S. companies so far this year, down 74 percent from $25.4 billion during the same period last year, according to S&P. The number of deals has held steady, however — 49 Chinese-U.S. acquisitions this year versus 48 last year.
That said, most analysts expect mergers and acquisitions to pick up in the third and fourth quarters this year, just as the pace picked up toward the end of last year. October 2016 was the biggest month ever for U.S. mergers and acquisitions.
This year, companies could also view gridlock in Washington as maintaining the status quo on regulation, giving dealmakers a more certain framework to operate in, said Jason Langan, Deloitte's east region managing partner of the M&A transaction services practice.
Amazon's high-profile $13.7 billion deal announced Friday to buy Whole Foods has also raised speculation the e-commerce giant could acquire other firms in an effort to build up its food delivery service and expand Prime membership products.
Potential opportunity for private equity
In the meantime, the lull in dealmaking could be an opportunity for private equity to find some footing in an environment increasingly dominated by corporate buyers.
Private equity firms closed only one transaction valued at more than $2.5 billion in the first three months of this year, while strategic acquirers closed 20 deals of that size or more, according to a PitchBook report.
"A touch of slowdown in corporate (acquisitions) has provided an opportunity for private equity," Langan said. Those financial firms "tend to be more active in uncertain markets."
On Wednesday, Reuters reported, citing sources, that private equity firm Sycamore Partners is in advanced talks to acquire Staples in a deal that could top $6 billion. Then on Thursday, CNBC reported, citing sources, that the family heading the Nordstrom department store chain is proceeding with finding a private equity buyer.
— CNBC's David Faber contributed to this report.