What A Trump Presidency Means For The Deal Market
What Donald Trump may do as the 45th president of the United States is unknown. Trump’s transition team has yet to release any policy priorities.
Trump talked in very general terms during the election campaign about lowering taxes, getting manufacturing jobs back to the US and getting government out of business.
Still, Trump may take a sledgehammer, in the form of the Republican controlled House of Representatives and the Senate, to the pottery that is the Obama legacy.
Here are some predictions:
1. HEALTH CARE DEALS TO REIGNITE
Trump has promised to scrap the 2010 Affordable Care Act. But unravelling that will prove time consuming given that hospitals, insurers and drug companies have reworked their businesses around the 2010 Act. In itself the cancellation of the Act may force companies to reorder, rework or restructure their health care businesses through deals.
The Financial Times said in April that US $370 billion worth of mergers and acquisitions had been blocked by the Obama administration. Many of those deals would have helped to lower tax rates for US companies but also resulted in less revenue for the US government, hence Obama’s opposition to them. These so-called inversions, much favored by drug companies, reached its zenith in 2015 when Pfizer and Allergan proposed a US $160 billion merger. The headquarters of the combined company would have been in a lower tax jurisdiction outside the United States. The Obama administration blocked the Pfizer-Allergan deal.
A Trump administration may allow mega-billion dollar mergers of drug companies in keeping with his rhetoric of getting government out of business and lowering tax rates for US-based companies, currently 35%.
2. BANK DEALS
Dodd-Frank legislation that sought to restrict Wall Street’s ability to conduct proprietary trading and investing may be repealed by a Trump administration hostile to regulation. Regulation of Wall Street is likely to be curbed. That could lead to some activities that Wall Street previously did such as hedge and private equity investing coming back in vogue under a Trump administration. Banks and investment banks may want, once again, to acquire investing businesses.
If the president elect appoints his adviser Steven Mnuchin, an ex Goldman Sachs partner, or Jamie Dimon, the current chairman and CEO of JP Morgan Chase & Co., as his Treasury Secretary, Wall Street’s appetite to do deals to enlarge their businesses is likely to increase. A Trump presidency may not stand in Wall Street’s way if they try to increase the footprint of their businesses globally.
Curiously, telecom companies seeking to do deals under Trump may not have it their way. There is considerable hostility in Congress and among the American electorate over plans by AT&T and Time Warner to merge. US small business owners, who are by and large loyal Trump supporters, and consumers are afraid an AT&T and Time Warner merger would increase their costs as such a giant will be able to boost their charges.
Trump gained considerable support from coal mining country with his promise to help them. Regulations may be eased for the coal industry. Deals may get done as assets, formerly in mothball or bankrupt, may be bought as coal prices are currently at five year highs.
Similarly, oil and gas exploration and production, particularly shale and oil sands producers, may find their industry is less regulated under Trump. Obama blocked the construction of the Keystone pipeline from Canada’s oil sands rich area to the US on environmental grounds. Deals in the shale and oil sands areas may be encouraged by a Trump administration eager to make America energy independent, i.e. not reliant on Middle East oil.
Exploration of oil and gas deposits in areas previously blocked because of environmental concerns may now be allowed under Trump. That may mean more deals as trading for the rights of exploration leases picks up.
The oil majors, Exxon, Conoco Philips and Chevron, may feel emboldened to acquire potentially resource rich assets, be they fields or companies, under a Trump presidency. Acquisitions may not be blocked by a Trump White House. The issue of new shares or preferred stock to fund any oil and gas acquisitions may be a prelude to M&A activity.
US military spending, including cybersecurity, is likely to increase under Trump. Globally, military spending is on the rise as the world deals with geo-political tensions. Makers of military equipment may explore deals to cut costs. Business divisions of some military companies, long envied and coveted by their rivals, may be subject to deal making. Such deals may involve fund raising.
6. PRIVATE PRISON COMPANIES
The stock prices of private prison companies in the US have surged in expectation that a Trump White House will lock up more people on the basis of their immigration status or because of a wider crackdown on crime. Still, if incarceration rates rise in the US, private prison companies may decide bigger is better. Prison M&A deals may get done. These companies may have to fundraise too if there is a demand for more prison cells.
President elect Trump made promises during the election that he will upgrade America’s infrastructure to make it “second to none.” But the rub is that a Republican controlled Congress is opposed to more spending, especially any spending that increases the deficit. Where will a President Trump find the money from a very reluctant Congress to spend money on roads, ports, rail and airports?
8. BORDER FENCE MAKERS
Betafence Holdings, one of the world’s biggest suppliers of fences and perimeter security systems, is owned by the London-based private equity firm CVC Partners. If Trump keeps his promise to build a wall across the US-Mexican land border, companies such as Betafence may not only get new business but come into play in terms of deals as investors seek to IPO a hot company or buy it because of promises of future profits.
9. PRIVATE EQUITY
Firms such as KKR, Blackstone, Carlyle, Apollo, Bain have long been the biggest payers to investment banks that advise and finance leveraged buyout transactions. If there is a lessening of regulation and positive market reaction to a Trump presidency, expect more private equity-led IPOs and company acquisitions. Private equity firms globally had US $755 billion in dry powder available for acquisitions at the end of 2015, according to Preqin, the data provider. Private equity manages US $4.2 trillion in assets, says Preqin, as of December 2015.
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Photo credit: Gage Skidmore