The HUUUUGE M&A Cycle

Is the global economic cycle at an early or late stage? There is no simple answer to this question. Even members of the Federal Reserve disagree about it. That said, I would argue that the most reasonable scenario suggests a surge in financial transactions, including M&A and IPOs, in 2026 and beyond.

From a global macroeconomic cycle perspective, the economy admittedly appears to be in a late-cycle phase. Growth is expected to drift lower in the US, Europe, and Asia, with trade frictions a common issue across these regions. Some may see a price worth paying for a more controlled, deglobalized world, while others will point to what happens when globalization is disrupted. For now, the bottom line is the same: 2026 is expected to see subdued economic growth (see the OECD and IMF).

Consumption, the biggest driver to GDP in most economies, is often described as K-shaped: strong at the top, strained at the bottom. Overall, the consumer cycle is also at a late stage. While displaying a high level of resilience (particularly in services), it is no longer a growth engine.

The industrial production cycle is in a different place. It has endured a three-year grind, with global PMIs oscillating around or below 50, and is thus due for a rebound.

The capital expenditure cycle is out of sync. It is well engaged in the early stage of a promising infrastructure cycle. Electrification, artificial intelligence, and energy transition trends are creating significant incentives to expand supply.

This private sector-led countercyclicality is a welcome anomaly at a time when government debt levels constrain a Keynesian stimulus in many countries. Typically, private capital expenditures are deeply procyclical, responding to rising consumption and industrial production. This time is different. Infrastructure capex, including in data centers, represents investments not principally driven by current economic activity. Instead, they are expected to act as an economic enabler driving future activity.

The current economic context calls for overweight exposure to power, data centers, and electrification as long-term value drivers in any portfolio, whether institutional or corporate. Consequently, 2026 should be a constructive year for financial transactions as capital gets allocated to the infrastructure capex cycle via M&A, spin-offs, IPOs, and other financing transactions.

Acquisitions in the power infrastructure complex have been undeniably expensive in a historical context, as is often the case early in a capex cycle. Valuation multiples will stay rich – and may get richer – as long as the cycle narrative holds. Believers in a capex cycle extending beyond 2030 will be able to justify elevated acquisition prices; non-believers should consider selling their exposure to the complex.

Moreover, if the capex cycle proves strong enough to pull the broader economy along, as argued last week in ‘AI’s NPV > $40 trillion,’ 2026 could also be an exceptional time to acquire assets poised to benefit from a macroeconomic upswing in 2027 and beyond.

The logical conclusion is that the M&A cycle and its little sister the IPO cycle are in their (very) early stages.