What does Trump mean for US dealmaking in 2017?

January 2017  |  FEATURE  |  MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The election of Donald Trump as the leader of the free world and 45th president of the United States on 8 November 2016 certainly ruffled a few feathers in every corner of the globe, to put it mildly.

As the initial shock subsides, attention has turned to how a Trump presidency is going to impact the world, with one area of interest being US dealmaking activity.

In a pre-election Intralinks survey of 1500 global deal makers, around two-thirds (62 percent) viewed the potential scenario of Trump in the White House scenario as likely to impact negatively on M&A activity going forward. Now that this notion is a reality, the outlook for US dealmaking opportunities in 2017 and beyond has become a matter of simmering debate for many in the investment community.

“We expect President Trump to be more supportive of free market activities than his predecessor,

which should support relatively robust deal making activity in the private company market,” says John Slater, partner and capital financing team leader at FOCUS Investment Banking LLC. “Large public company deals will be more dependent on robust equity market valuations, which are possible, but not certain. Every indication is that the economy will continue to grow in 2017.”

For Rajiv Khanna, a partner at BakerHostetler, Trump’s business acumen will be a significant factor in how robust US dealmaking proves to be in the years to come. “If Mr Trump is anything, he is pro-business,” he says. “Therefore, I am very optimistic that he will do everything to help businesses to grow both organically and inorganically through M&A. Dealmaking opportunities under president Trump will blossom.”

US inbound investment

“The US M&A market saw strong inbound investment, particularly from China, in 2016,” notes Mr Slater. “Capital flows are driven significantly by global instability and other factors, such as the desire among both Chinese and European investors to establish a safe haven for their families in the event of increased instability in their home countries. These factors will be little affected by a new administration.”

Mr Khanna expects capital inflows under Mr Trump to increase exponentially as the new president does everything in his power to increase the valuation of US assets by making it easier to acquire them. He also expects Mr Trump to dramatically reduce taxes and cut the red tape which restricts businesses, with the result that the “growth rate in the US will surge”.

Recognising that a number of the policies advocated during the election may lead to greater scrutiny of inward investment into the US, Stuart Blythe, global co-head of M&A in the TMC sector at Cameron McKenna LLP, believes that a Trump administration will be a strong promoter of US interests. This could encourage US domestic merger activity at the expense of cross-border M&A. “Given the overall size and importance of the US market, it is difficult to see there being any decline in appetite for inbound investment,” he says.

Regulation

The regulation of financial services, a political hot potato in the years since the financial crisis, seems set for a shake-up given that Mr Trump made no secret of the fact that he would like to see less rather than more regulation in this sphere. The new president will sensibly reduce regulation in all sectors, including the financial sector, suggests Mr Khanna.

Indeed, there is a general assumption that the Dodd-Frank Act, and the Consumer Financial Protection Bureau in particular, will come under heavy scrutiny in the new administration. “Financial innovation is increasingly coming from outside the regulated banking industry, with tens of billions of risk capital having been invested in FinTech, for example, with limited regulatory oversight,” explains Mr Slater. “These investments will mature over the next few years, increasingly removing the locus of action in areas like payments and digital currencies far from the reach of the regulators, regardless of the party in power.”

Some believe deregulation may encourage growth as well as M&A activity. “Wall Street itself may be perceived as a beneficiary – through a combination of deregulation fostering growth and potentially benefiting from any uncertainties in European financial services markets,” suggests Mr Blythe.

Western civilisation

“Notwithstanding the obvious concerns about much of Mr Trump’s rhetoric, I am confident that this is not the end of Western civilization,” says Mr Slater. “We and most of the Western world are in the midst of profound transformations comparable to the 18th and 19th century upheavals in Europe that resulted from earlier iterations of industrial revolution. Trump – and Brexit – are clearly manifestations of these pressures and are not likely to be the last.”

For all the portents of doom and disaster vented on the way to perhaps the unlikeliest political ascendancy of all, the assumption must be that however Mr Trump’s newfangled America pans out, it will not send the country into inevitable meltdown.

© Financier Worldwide

BY

Fraser Tennant