U.S. middle-market dealmaking in the first three quarters of 2018 surpassed the same period in 2017, according to PitchBook. If the pace continues in the fourth quarter, middle-market deal value may surpass $400 billion for the first time ever. One important question: Will the momentum continue now that the power has shifted in Congress? Mergers & Acquisitions asked Matthew O’Loughlin, partner and co-chair of the mergers and acquisitions practice with Manatt, Phelps & Phillips LLP, to share his thoughts on how the mid-term elections will affect M&A.
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?
The split Congress will make any dramatic regulatory changes from the legislature difficult – whether implementing new regulations or undoing some of the changes over the past two years. The executive will likely continue to implement and police regulatory matters consistent with the past two years. Generally people are comfortable and familiar with divided government.
Now that the mid-term elections are over, has your sentiment about dealflow changed? Has it improved, declined, or stayed the same?
The election result in of itself should not have any material impact on deal flow in the short to medium term with the result consistent with general expectations. The bigger influences will continue to be whether the economy remains positive through 2019 and any substantial increases in the cost of capital if interest rates rise. The likelihood of a second round of tax cuts has become unlikely and pressure for tax increases will grow. That may cement decisions of some to proceed with a transaction in the nearer term or at least prior to the 2020 election if they see a risk of tax increases thereafter.
Do you think dealmaking in 2019 will be higher, lower, or the same as 2018?
Absent any major economic or financial markets disruptions, 2019 will likely be consistent with 2018 with a solid economy, strong appetite for deals and a reasonable cost of capital driving the activity.