Worries about globalization, the direction in interest rates and changes in tax law could all make transactions in 2017 different than preceding years.
For the last three years, the M&A market has been as steady as a strong heartbeat.
That could be about to change as the deal market moves deeper into 2017.
The prospect — in fact, the guarantee — of rising interest rates could change the capital structure that has fostered deal flow the last several years. Then there’s the changes hinted at by the incoming presidential administration: the prospect of lower corporate taxes, trade barriers, changes to overarching policies such as the healthcare act. Put it together, and the environment looks different than the one that existed in the booming transactional years of 2014 through 2016.
That’s one takeaway of Fred Tannenbaum, an attorney and expert on private equity and venture capital at Gould & Ratner LLP, the Chicago-based law firm, in a recent interview. In short, his feelings could be summed up as “the times they are a changing,” though Tannenbaum didn’t use those words himself.
There are certainly going to be some benefits of a Trump administration. The president is a dealmaker, by nature bent toward transactions. Real estate opportunities would seem to have some time in the sun. (Coincidentally Tannenbaum’s firm, Gould & Ratner, traces its roots to the assets of the Crown family, which at one time owned New York City’s Rockefeller Center, giving the firm some proximity with midtown architecture.)
That said, there have been specific transactions that he’s opposed, the merger of AT&T Inc. (T) and Time Warner Inc. (TWX) prominent among them, citing his reluctance to see that much concentration of media power in one enterprise.
Trump also has expressed concerns about globalization, as well as the NAFTA agreement and elements of free trade, suggesting that there could be some risk to cross-border transactional activity.
On the other hand, as Tannenbaum noted in the interview, certain of the propulsive factors that have guided the robust transactional activity in the M&A market the last several years haven't—and likely won't—change, at least not dramatically or immediately.
The U.S., as well as global, economies are still operating in relatively low-growth mode, so it remains more efficient to achieve growth by acquisitions than by organic means. Strategics still have an appetite to make deals, if only for the occupants of the C-suite to convince the board they’re pursuing growth. And PE firms are still sitting on a powder keg of capital that can finance transactions.
As Tannenbaum noted, the appetite of the capital markets to continue to support deals remains robust. So while the character of dealmaking in 2017 may change from preceding years, the occasion of them won’t.