Presidential Politics & Private Equity
Mergers & Acquisitions convened a roundtable sponsored by Fifth Street Finance Corp. and Rutan & Tucker LLP to explore the impact of the 2012 presidential election on middle-market dealmaking
To explore the impact of the 2012 presidential election on middlemarket dealmaking, Mergers & Acquisitions convened a special roundtable, held at the Nasdaq exchange and sponsored by Fifth Street Finance Corp. (Nasdaq: FSC) and Rutan & Tucker LLP. Participants included four private equity investors, two members of government (a Democrat and a Republican), two lenders, an investment banker, an attorney and a consultant. Most of the roundtable participants are supporting former Governor Mitt Romney (R-Mass.) in the election, which underscores the Bain Capital co-founder's popularity among his private equity peers. Watch our video interviews with the roundtable participants. And, for more coverage on the impact of the 2012 presidential election on middlemarket dealmaking, see our October cover story "Friends of Mitt," as well as "President Obama Has Friends in Private Equity, Too," and "Welcome Wagon for Small Businesses?"
Mary Kathleen Flynn, Mergers & Acquisitions (moderator): What's at stake for the middle market in the presidential election?
Leonard Tannenbaum, Fifth Street Finance Corp. (sponsor): The next president has a great challenge. The challenge coming up is in dealing with a year in which $1trillion dollars has to be cut from the federal budget. Both sides agree. There definitely has to be $1 trillion of entitlement cuts. The "Grand Compromise" will happen in the first quarter of next year. The Democrat and Republican senators that we have met in Washington both agree nothing is going to happen this year. Something is going to be mandated, but it's going to be next year. You have a whole landscape of uncertainty that the new president, or the existing president, is going to face. Will taxes go up? Will dividends go up? Will capital gains go up? Will "ObamaCare" get repealed? As I've canvassed small businesses across the state of Connecticut, I've found higher healthcare costs are the number one, two and three things concerning them. I've been talking to the 60 or 70 private equity sponsors that we lend to about their portfolio companies, and this is a big issue. So, the question is: Does healthcare get repealed? How do you forecast your business, how do you forecast what you want to do, and how do you think about deals and lending? This environment creates great uncertainty. The country is also going to make a choice between what I call statist and capitalist, not Democrat and Republican. This is a statist president. This is a president who wants a bigger, better government. And I personally don't believe in a big government. I believe in letting the markets work. Romney clearly decided that capitalism and free markets are much more his style. He doesn't want big government. He doesn't think the government is the solution to our country's problems. I just turned 41, and in my voting life, this is the most important election by far.
Flynn: How might Mitt Romney's experience as a private equity investor be relevant if he becomes the next U.S. president?
Geoffrey Rehnert, Audax Group: I consider Mitt a mentor. I worked closely with him throughout the entire time he was at Bain Capital. I was actually one of the two first associates, and so for the first five or six years of Bain Capital, there were really only a handful of us. So, I know the person he is. I know his ideology. I know his belief system. Mitt is a strong believer in capitalism and a strong believer in markets. And he's lived that, certainly, in his business career. I believe Mitt's experiences-15 years in private equity, another 10 years of business experience prior to that with Bain Capital, being governor of Massachusetts and a variety of other public-service undertakings-will serve him well if he gets elected in November. I've never met a more capable person in my lifetime. He has a tremendous intellectual capacity. He has an enormous energy level. He's very good at bringing people together and inspiring them and getting them to work hard to a common purpose. I believe the economic problems that the country faces are solvable. We have the fundamentals for a terrific economy in this country. And we had a terrific economy for a long period of time, and then we had a liquidity crisis in 2008. And that liquidity crisis was a mix of the subprime mortgage crisis and the derivative trading that was not understood by the financial institutions that were trading. And that liquidity crisis brought the global economy to a screeching halt. And then there was a change of administration, and although there has been a bit of a recovery, it's been a slow recovery. And it's been pretty much economic stagnation in this country and certainly throughout Europe for the last three or four years. I believe a different set of policies with a different leadership team in Washington will lead to a very different economic environment in this country, and that will ultimately filter throughout the globe. I think in my lifetime, it's probably the clearest choice going in one direction or another: statism versus capitalism and socialism versus free markets. In Europe, they're making the choice for statism, and it's become much more statist in the last three or four years. The question is: will this country follow that path, or will it return to the path we were on in the late '80s, '90s and the first part of this century?