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.