Mergers & Acquisitions asked Dan Shea, a managing director at BDO Capital Advisors, to share his thoughts on the election results.
How will Democrats’ winning control of the U.S. House of Representatives affect the financial services industry in general and private equity and M&A in particular?
We can likely expect the status quo on policy since we’ll have two years of congressional gridlock. It is said that the public markets like gridlock in Washington. It is probably the same for the private equity markets as well, especially given the PE overhang, the excess cash on company balance sheets and an aging baby boomer population still owning many of the privately held businesses in the US. Potential infrastructure investment, one of the few areas of agreement in Washington, may further stimulate PE and M&A activity in the near and medium term as well as progress on trade deals.
As a dealmaker, which regulatory issues are you paying the most attention to, and how are they likely to be affected by Democrats’ controlling the House?
We see Democrats control of the House potentially impacting immigration and the environment. Actual progress on these fronts will surly impact dealmaking but it is hard to predict how, given a lack of legislative clarity at this point. Dealmakers will try to avoid investing in areas of our economy where external potential regulatory change is unpredictable yet possible.
Now that the mid-term elections are over, has your sentiment about dealflow changed? Has it improved, declined, or stayed the same? Why?
We see sentiment on dealmaking staying the course, unless the economy softens. For now, the drivers for high deal flow and high multiples remain in place – a strong economy with the US and the “economic high ground,” healthy corporate profit levels, substantial dry powder and excess cash on corporate balance sheets, and a willing seller population, all point to a continuing, strong M&A market. The only real drag on dealflow has related to trade and tariffs, so dealmakers are wise to steer clear of deals with material exposure to this issues.
Do you think dealmaking in 2019 will be higher, lower, or the same as 2018? Why?
We expect dealmaking to be about the same as 2018. We think if there’s a market correction that consumer staples and essential services will be good counter-cyclical areas for investing.