Deals and discipline: What’s driving markets at mid-year?

[Music]

Evan Junek: Welcome to JP Morgan's Making Sense. I'm Evan Junek, global head of corporate finance advisory. Today I'm joined by Charlie Bouckaert, global head of advisory and M&A. Charlie recently stepped into this role at a moment when markets are showing an unusual mix of resilience and complexity. At mid-year, we're seeing a market that has absorbed a lot. Geopolitical shocks, commodity volatility, a more complicated rates backdrop, and ongoing questions around the return on AI and other growth investment. At the same time, capital markets have remained receptive, companies are still investing, and the M&A market has been notably active. For today's conversation, we're going to look at that mid-year picture through two primary lenses. First, we'll draw on the global M&A mid-year outlook, which gives us a view into deal activity, boardroom behavior, and what it means for companies to be strategically ready. And second, we'll draw on our CFA mid-year work, which we're calling Building Through Uncertainty, which looks at macro conditions, market resilience, AI CapEx scrutiny, and much more. Charlie, lots to discuss today. Thanks for joining.

Charlie Bouckaert: Thank you for having me. Pleasure to be here.

Evan Junek: So let's start with the basics. Why don't you give us just a rough sense of the first six months of 2026? What did the M&A outlook look like and what have we learned so far?

Charlie Bouckaert: Yeah. I mean, to restate some of the themes that you highlighted, obviously activity level's very high. We're at all-time highs in terms of announced M&A volumes. I think when you look at pipelines across the street, including ours, as well as the shadow backlogs that people have, it really feels like activity levels are going to remain very elevated into the rest of the year. The other interesting thing is just the composition of that M&A. We've seen a lot more corporate activity than we typically see. We've seen a lot more large deals than we typically see, and we've seen a lot more large complex deals, including cross-border deals underlying that. So, I think that is very much a change versus many of the past few years.

Evan Junek: Yeah. And I think in some regards, this is just a lot of the themes we've been highlighting for years now coming to fruition, right? The themes we've talked about in the past but are resonating today. One is the premium for growth. We've seen a significant premium for growth across the market, really almost any way you slice it, whether you talk about large cap companies and the relative growth that they're exhibiting and their valuations. And we'll talk a little bit more later about how that's actually manifesting, not just in M&A, but also in broader investment trends as well. The other theme we've seen is one of the value of scale. And these are themes we've seen now several years. Again, we can't predict the future, but we know these themes have become more and more durable over time. Talk to us a little bit about that theme of scale. What do we see in the data that really illustrates that perceived value of scale, both from our corporate clients and then the broader market as well?

Charlie Bouckaert: I think the most obvious place to start is the magnitude of AI investment that's happening. If you want to be a participant in the secular theme of AI, obviously you can start with the hyperscalers and what they're doing, but you can work your way down to other components of the value chain. The amount of dollars that you need to have to be able to fund that are enormous. I mean, the numbers are absolutely staggering. And so I think that kind of ripples through the whole supply chain. And so even people who are trying to supply things, whether that's chips and how expensive that is, or whether it's cooling systems, real estate or anything else, you need to be able to do that at scale. You need to do it rapidly and you need to have a lot of capital expenditure dollars available. So that's maybe the most obvious manifestation of it. But when you think about the geopolitics as well and how fluid the environment is between tariffs, conflict, and just frankly, divergence in growth rates and your ability to redeploy, again, scale and geographic concentration and diversity combined are all important. And so I think that, to your point, really highlights themes that were important before I think have become incredibly important and the absence of some of these things is now evident to people. And so when that manifests your activity, when you look at cross-border activity, for instance, one of the reasons I think that's up as much as it is, is if you don't have exposure to the right markets in which you have the opportunity to grow, your willingness to do things to get that is very high. And I think we've really seen the bias move to action versus inaction. I think often corporate boards have a tendency to say, "We have a pretty good hand and let's keep playing that hand." I think you've really seen that shift in the last 12 months to that's actually a riskier move than making some investments and making some bets.

Evan Junek: Lot in there that I'd like to unpack in a little bit more detail. So let's rewind the clock for just a second because at least our piece, and certainly your piece by extension, your mid-year assessment, sort of need to think about where we started this year. And certainly some of these things that we're talking about are not a surprise, right? This theme of AI investment, this theme of scale, these are all things that I think many of us anticipated. But in that period of time, we've actually seen an extraordinary amount of geopolitical volatility as well. And something we highlight in the CFA piece is that for the first time, arguably, maybe even ever, we've gone through a period of geopolitical volatility that had a direct impact on commodity prices. A lot of the assessments historically have shown that most geopolitical conflicts don't really have material impacts on capital markets until it hits commodity prices and by extension sort of the bottom line, so to speak, of many companies in terms of supply chains. But this year, the market has managed to power through that. In fact, the first hundred days following the Iran conflict, the S&P was up 9%. That compares to down anywhere from 10 to 15% depending on the previous conflict you want to compare and contrast against. It's a very different kind of market environment. And I think a lot of people point to the overwhelming resiliency of the market is also a factor in that decision-making process. You talk about being maybe more proactive, more willing to put yourself out there in a bigger way. And certainly the resiliency of markets help people feel a lot more confident about doing so when you don't feel like every day you're going to completely change the market backdrop. But I do think one lesson for a lot of the clients, and it's going to tie into where the capital markets are today relative to where it's been for the last six months, is that resiliency shouldn't be mistaken for a lack of risk. And there's still very much risk out there. And I think when we look at the magnitude of capital that's been raised in the market, what you see out there is companies de - risking themselves proactively in the massive magnitude of capital that's being raised over time.

Charlie Bouckaert: Look, we've certainly seen a shift when you think on the capital side. I think one of the reasons the market was relatively calm in its assessment of the impact of the capital expenditures is it was getting funded out of cash for a long period of time. Relative to many super investment cycles you've seen in different industries over time. This was really getting funded organically for a long period of time. I think we have shifted into a moment where it no longer is, both because the cash is getting drawn down and because people are proactively de - risking it. So it's some of both going on. I do think that means the market now has a heightened sensitivity to how long this is going to persist for, what the returns are going to be. And you certainly see for some of the companies that are the furthest down leveraging to do it, that there's more volatility in the stocks in the way that they perform. And so we're definitely, I wouldn't call it an inflection point, but we're at a transition point in that. And it will be interesting to see whether the market remains as sanguine as it's been for that. But certainly so far the magnitude of the opportunity and the secular themes have definitely outweigh some of the risk coming behind the investment.

Evan Junek: Yeah, it's very interesting. One of the bits of analysis we did for the CFA mid-year piece was to look at how companies are talking about the return on investment of their capital programs. And this is an indicator arguably of how much focus they believe investors have on the productive use of that investment capital. And so we used return on invested capital or ROIC as a proxy for that. And we looked at how companies are talking about return on invested capital. And as you zoom out and you look at the broader market, we haven't seen a major shift in that trend. But if you focus just on say the 30 most AI exposed companies in the market, those companies increased references to return on invested capital by about five times in the first quarter of this year. So massive increase in their willingness or ability or desire to talk about returns for exactly the reasons we believe you're referencing, which is the market is getting a little bit more sensitive to understanding, okay, we understand the need for this investment. We understand the growth potential. And the data also shows we're in the midst of arguably the greatest earnings growth cycle we've seen in the last generation. So it is manifesting in real earnings growth at the bottom line that the market is willing to give credit for, but you still need to focus on that discipline of generating true returns and the investment dollars that you're spending.

Charlie Bouckaert: And I think your point around the lack of reaction to commodity prices or the lack of downward pressure as a result does tie into those themes of balance sheets are still relatively healthy. There is more stress starting to come because of the magnitude of the investment, but overall still relatively healthy. And earnings so far haven't really been impacted by some of the inflationary pressures. Obviously in some sectors on more on the retail side, you are seeing some pressure come through. But for the most part, while companies are worried about it, they haven't seen the pressure. And I think as a result, the market is looking through and believing that the growth upward pressures coming from the secular themes of AI and some of the geopolitical realignment are going to outweigh and mitigate any spikes in commodity prices, which haven't been really severe. I think if we saw another significant leg up, it would be interesting to see whether that resiliency can persist.

Evan Junek: There are definitely limits to resiliency of all forms. So let's shift gears a little bit. Let's go back to sort of the M&A landscape for a second. Talk to me a little bit about the sponsor landscape right now. What are sponsors doing? We talk about the strength of the M&A market generally. How are those two things interrelated, if at all?

Charlie Bouckaert: So I think on the buy side of things, it has become a more complicated landscape. Back to my point in our early discussion around corporates are really leaning in and doing things, that's not usually the environment they're in. I think some of the aggressiveness we've seen from corporates is not just on value. It's also the speed at which they're willing to move, which is usually a big differentiator for sponsors. So I think sponsors are being very selective on where they want to spend time on the buy side because frankly, it's not a good use of time in many situations right now. So I think high selectivity on the buy side, there are clearly situations that still make sense and we continue to see some of that activity. I think where the focus is more, how do you take advantage of this environment for monetizations? That's been relatively slow in recent times. And the sponsor to sponsor trades in particular have been more difficult given the higher interest rate environment. But you have a world in which corporates are very active. You also have a relatively open IPO market or very open in certain ways and relatively open for sponsor-backed companies. And so I think sponsors have spent a lot of time trying to figure out how do you take advantage from a monetization perspective of the robust M&A environment with corporates as well as the robust IPO environment. And certainly for companies, portfolio companies they own with the right themes, there are great outcomes getting achieved both by selling to corporates and doing IPOs.

Evan Junek: I though something you said before we started recording resonated with me, which is that maybe the last 10 to 15 years we're much more of a sponsor led M&A dynamic. And this is one of the periods where that pendulum may just be swinging back the other way. And it feels very much like the strategics are at a sort of strategic advantage, for lack of a better term.

Charlie Bouckaert: I think that's exactly right. And I do think the pendulum will re-swing in the other direction. There's large amounts of dry powder. And once you see more monetization and a better competitive landscape on the buy side, I think you'll see that really take off again. But it's not the moment in time that we're facing right now. And look, I think we also didn't touch on it, but clearly software M&A in the sponsor world has been a big theme that's driven volumes. And while people sought out the impact of AI on software companies, that's kind of on pause. We absolutely think that will return, but that's not the market we're in either. And so I think that's putting further pressure on sponsor volumes.

Evan Junek: Want to shift gears again and talk a little bit about the impact of policy. We're in a midterm election year. So as we go into the second half of the year, that will certainly dominate more and more of the broader conversation, whether we like it or not. How does this current policy environment impact the M&A landscape and the M&A world today? And how do you see the next six months playing out in that regard?

Charlie Bouckaert: One of the things we haven't talked about yet that has contributed to the desire to do deals is a perception that there is a more accommodating policy environment in Washington, certainly from an antitrust perspective. And I think the perception has probably run ahead of the reality. I mean, we've certainly seen some people test the bounds on some deals that frankly didn't seem like they were going to get traction. But overall, when we look at approvals for deals, they are quicker and the number of investigations is down. So I think that is in fact real though maybe not as significant as people think. At the start of this year, we were having a lot of conversations with clients and frankly amongst ourselves about the impact of the midterms with a general view that what was driving first half volumes was that people wanted to get things out there and done before the midterms. I'd say what's interesting to me right now is nobody seems to be talking about the impact of midterms on activity levels and everyone expects them to remain really high. And so either that's because ultimately it's the secular themes that we've been talking about that are just such an imperative to activity or the market's wrong and it's going to have a more significant impact. My guess is it doesn't dampen activity all that much. And while it may have some impact and you see the potential for a more distracted Washington, it will have a more limited impact than people had anticipated. I know you've done a lot of research over time of the impact of midterms. And generally speaking, it's high on the dialogue front and it's less on the actual impact front.

Evan Junek: That's well summarized. I think that's exactly right. With the nuance that as we go into the back half of the second Trump term, we will be in theory in full lame duck mode. And as a president who clearly likes to get things done, we would anticipate even more executive actions, even more potential policy uncertainty that comes as a result of that. For better or worse, executive actions are not the best way to govern. That creates a lot of legal uncertainty and process uncertainty as a result. And there's no question in our minds that increasingly, and we've been saying this now as an organization for several years now, policy has to be front of mind when it comes to anticipating and planning for the future. It can no longer be sort of a second order consideration. It needs to be one of those things that are part of the strategic planning process just in the same way you'd be planning for economic shocks or rate shocks or anything else of that matter.

Charlie Bouckaert: I want to take a partially contrarian view on this issue, which is when you think about the amount of policy uncertainty that we've had, look at tariffs as the main example. They're in, they're going up, Supreme Court rejects them, they come back. And yeah, activity level's been very high. And so my view when I look at the second half is yes, we will have plenty of policy uncertainty and yes, it matters. I think the bigger thing that will matter is if there is a view that we're reaching a change in the rate of growth of AI spending, not even just a decrease in the amount, but just a change in the rate of growth, that will probably have a bigger impact on animal spirits than policy. Policy uncertainty will then compound on that. But I think the thing that will be more of an inflection point is that perceived view on the rate of change. Because you were talking about values in the markets, especially for the high growth sectors, it's extremely terminal value weighted. And I don't know that there's a real consensus view on exactly how long this is going to extend and the magnitude of the impact. And so we're definitely on the greed side of the fear and greed spectrum right now, but that could certainly change. And so I do think policy matters. I just don't think it's going to be the thing that changes psychology.

Evan Junek: Totally agree with you there. And also agree with you about sort of what's driving animal spirits in the market today. I'd say only nuances to that point is the quote good news or the silver lining to that is yes, obviously the biggest dollars are coming from things tied to AI, but interestingly enough, we do see even sort of the typical large cap company increasing CapEx intensity, increasing CapEx spend on a relative basis. Again, not just tied to inflation or something like that. So there is an indication that the broader market sentiment towards growth is affecting not just the largest and most AI oriented companies, but also sort of your everyday company that is maybe tied to industrials or other forms of investment exposure. And those companies are going to help solidify the base of growth. And I think is one, again, sort of silver lining for why we may see more resiliency even to the market, even the kind of growth moderation scenario that you outline.

Charlie Bouckaert: Well, look, we haven't talked about the growth divergence from a geographic perspective that much, but it's certainly clear when you compare the US and Europe that the market's view is that there's going to be a very persistent divergence between the underlying growth rates between the two markets. And as a result, the amount of investment certainly in North America is high whether it's tied to AI or not.

Evan Junek: Yep.

Charlie Bouckaert: And we do expect that to continue. And when we speak to clients in Europe, their desire to get incremental exposure, organic or inorganic to North America is very high.

Evan Junek: Yeah.

Charlie Bouckaert: And I think again, that looks through some of the policy uncertainty. I some cases it may be also encouraged by some of the policy actions, but I think that theme will continue as well.

Evan Junek: And to borrow one of your stats, obviously the cross-border M&A dynamic is also at multi-decade highs. So we're seeing this really across the board. It's not just an AI play. It's not just even a domestic growth play. It is truly something being felt pretty globally.

Charlie Bouckaert: And geopolitical security concerns contribute to that as well. Some of the investment deals that are clearly tied to security concerns in specific regions. And I think that given the instability that we have, in fact, encourages some of that, not discourages it. So you do have a lot of really different trends cutting against each other here, which makes it so hard to discern exactly where we're going to go and what's going to have an impact.

Evan Junek: Yeah. So I'm going to ask you an unfair question to wrap up the conversation here, which is I know we're not trying to be prognosticators or people trying to forecast the future here, but you've obviously got a microphone in front of you. You've got a lot of clients listening. What does the next six months look like? What are you telling your clients or boards to think about for the remainder of 2026?

Charlie Bouckaert: So I'm going to start by asking you an unfair question and then I will give you my view, which is Alan Greenspan famously, when he was fed chair, talked about animal spirits and an excess of animal spirits in financial markets and cautioned against those ahead of the ultimate.com correction.

Evan Junek: Yeah.

Charlie Bouckaert: When did he say that?

Evan Junek: Ooh, good question. Probably 1997, that would've been my guess.

Charlie Bouckaert: So for those who were born well after the fact, and I remember these because I started my career right in the middle of the dot-com implosion. So it happened in July 2000.

Evan Junek: Later that. Okay. Interesting. Okay. [This portion was removed from audio. Please add back in]

Charlie Bouckaert: Well, that's when the market crashed.

Evan Junek: Yes, yes.

Charlie Bouckaert: But when I've asked, you're the first person to get close that I've asked. Most people guess 98 or 99. It was actually December 1996.

Evan Junek: It's much earlier than people recall.

Charlie Bouckaert: And so I say that to then segue into answering your question, which is what are we telling people? Look, ultimately these investment themes are enormous and it's incredibly difficult to predict when market sentiment around those is going to change. I think it's unquestioned that it will at some point in time, but that could certainly be three more years away. It could be three weeks away. I think it's very unlikely just given the scale of the investment that's going on and how long it's going to persist. Our view is it does absolutely make sense to reposition for the magnitude of these secular changes that are happening and investing to do that makes sense. Obviously having some discipline around leverage is crucial because at some point the environment will change. And if you're buying businesses that allow you to fundamentally reposition yourself in the face of these enormous changes, you should do that. And you shouldn't necessarily worry about exactly where we are in the cycle, but you need to do it with a view to the fact that the cycle could change and give yourself the cushion to do that. So that's our biggest advice is it still makes sense to be forward-leaning. It makes sense to reposition yourself because five years from now, if you haven't built the strategy that you need from a geography or AI or other growth perspectives, that is ultimately going to put your company in a very tough position. But you need to have some degree of prudence, especially with the balance sheet.

Evan Junek: Yeah. And just to amplify a couple points there, when you look at the cost of risk that the market is charging, it is so low today relative to history. If you talk about credit spreads, if you talk about implied market costs of equity, by almost any measure, the historical costs of those capital is very, very low. And in an outlook like the one you've just articulated, it's really obvious to us that people should really proactively de - risk their capital needs in any way, shape or form that they can. I mean, I think that's ultimately the most important takeaway from this. It ties into the balance sheet, ties into the proactive nature of the strategic landscape, but absolutely crucial to use that opportunity while it exists to manage the balance sheet, de - risk your needs and be prepared for anything that might come your way. Well, Charlie, thank you for joining and sharing your perspective on the M&A landscape and what boards should be thinking about at midyear. And thank you to everyone for listening to Making Sense. We hope this conversation helped connect to what we're seeing in markets with what companies are doing strategically. Until next time, I'm Evan Junek. Thanks for listening.

[Music]

Voiceover: Thanks for listening to J.P. Morgan's Making Sense. If you've enjoyed this conversation, share your feedback by leaving a comment or review wherever you listen to podcasts. And be sure to follow our channel so you don't miss an episode!

This material was prepared by the investment banking group of J.P. Morgan Securities LLC and/or its affiliates and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument. Copyright 2026 JPMorgan Chase & Co. All rights reserved.

[End of episode]