Trump’s Impact on M&A May Reflect Traditional Republican Policies: Guest Article
Areas of alignment between Trump and traditional Republicans include: lower taxes for businesses; more spending on infrastructure and defense; and fewer regulations of financial services
Following the Republican sweep, a key question for dealmakers is whether this election portends the emergence of a Trump Doctrine with positions on key issues that are meaningfully distinct from traditional Republican policies, or whether campaign talking points will solidify into positions that are familiar to the GOP faithful. Until that question is answered in time, the safest bet for the future direction of legislation is to look at the places where Mr. Trump and the Republican Party most overlap.
In this regard, we are likely to see significant support from the Republican Party at large for Mr. Trump’s vision of rejuvenating the economy by slashing taxes. His tax plan calls for a business tax rate of 15 percent, elimination of the corporate alternative minimum tax and a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10 percent. A lower corporate tax rate – on par with, or below, that of other industrialized nations – together with a shift to a tax structure that encourages profits earned and taxed abroad to be repatriated could result in more opportunity for the efficient deployment of capital in the U.S., which will likely spur dealmaking activity in general.
Certain industries are also likely to benefit from alignment between the White House and the Capitol. Although there may not be complete agreement on which projects should have priority, for example, border walls versus the electrical grid, it appears there is a broad consensus that federal spending on infrastructure should increase. Together with increased support for public-private partnerships, we can expect to see a boost in spending in this sector. There is also broad support for increased spending on defense, particularly to bolster space- and cyber-based capabilities.
In addition, the energy sector is poised to benefit from alignment on deregulation, especially for fossil fuels like coal. Limiting the Environmental Protection Agency and regulations enacted under the Clean Water Act and granting greater access to public lands and the outer continental shelf, could benefit producers and those in downstream and supporting markets.
We can also expect deregulation for the financial services industry, with Mr. Trump and the Republican Party platform calling for repeal of the Dodd-Frank Act and the elimination or weakening of the Consumer Financial Protection Bureau. The platform also calls for efforts to encourage community banks and to reinstate Glass-Steagall. As a result, we could see an uptick in deals in this sector.
Although both the President-elect and the Republican Party platform have been critical of trade agreements, that criticism seems focused more on the terms and enforcement of any particular deal, rather than a repudiation of the concept of open markets in general. Accordingly, we are likely to see continued use of multilateral trade agreements with other nations committed to open markets, which is important for U.S. exporters.
Despite this apparent alignment on many key issues, we have not yet seen Mr. Trump as President Trump. His views may yet diverge from traditional Republican views, and from his seat at the top of the party, he may gather support for his own brand of Republicanism. In this election, the Republicans did well down-ticket, but we did not see many of those Republicans aligning themselves ideologically with Mr. Trump like we saw with the Tea Party movement. Down the road, as we get closer to mid-term elections, we could see that kind of movement emerge as incumbents shift toward President Trump in order to shore up support for their reelection. We will have to watch closely to see what develops, and whether it’s good for business.
Eric Siegel is a partner, and Steve Stoute is an associate of Dechert LLP, a global specialist law firm focused on sectors with the greatest complexities, legal intricacies and highest regulatory demands. The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates.
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