-e a flurry of M&A activity in order to get ahead of it. We saw this situation in the fourth quarter of 2012 under President Obama, although no changes were actually made.
Conversely, if there is a signal that Trump will lower the personal income tax rate for individuals, investors will wait to see if they can benefit from these changes by deferring M&A activity into the future.
I expect investors will now begin incorporating into purchase and sale agreements some type of provision for future refunds / payments based on any benefit or detriment arising from tax law changes related to the treatment of carried interest.
4. Loosening of the Regulatory Environment
I believe Trump’s stated intentions to relax the regulatory environment will not only drive M&A but also spur significantly more initial public offering (IPO) activity, which may become a more attractive option under less regulation. In particular, specialty pharmaceutical, biotech and device companies will benefit from this environment and as a result will see improved valuations and related activity.
However, don’t lose sight of the fact that Trump has also indicated that he would block certain deals that he deems detrimental to competition and the consumer.
In addition to these four key reasons, other economic factors, such as cheap oil and currency exchange rates, will certainly impact the breadth and depth of deal activity in 2017. Although these are still somewhat volatile, signs are pointing to favorable deal activity. This volatility will spur hedge fund trading activity and greater risk-taking in the financial markets as firms look to drive alpha.
President-elect Trump is by nature a dealmaker. Ultimately, I expect that the actions of his administration and a Republican-controlled government will favor M&A deal-making in the near future and over the next four years. For companies considering options and opportunities, now might very well be the time to act.
Paul Aversano is a managing director in Alvarez & Marsal’s private equity services practice, which provides PE firms and their portfolio companies with integrated financial accounting, tax, operational, industry and functional expertise across the investment lifecycle. Aversano is the global practice leader of the firm’s transaction advisory group.