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The Art of the Deal: Mergers & Acquisitions Edition

Last month, corporations set an all-time record for the value of deals related to mergers and acquisitions, as we discussed here. Among the reasons for the new high, which beat out the previous record from January 2000 by over $50 billion, were the cheap borrowing costs associated with a low interest rate environment and a sense of urgency to get deals done before a new administration came into office. At that time, the safe bet was that a Clinton victory would ensue and that antitrust regulations would be at least as strong as they were under President Obama.

Well, here we are now. President Elect Trump is preparing to take office, and these pre-election expectations have been flipped on their head. There are two main reasons that deal-making firms are now looking at an environment that has the potential to be much more favorable for consolidation. First, the lower corporate taxes that Mr. Trump has promised will free up more capital for companies to spend on acquisitions. Any tax-free repatriation of overseas profits, which Trump has also advocated for on the campaign trail, would magnify this effect even more. Second, and most importantly, a scaled back regulatory environment would allow M&A deals that may have otherwise been blocked to go through. Although the President Elect has not specifically pointed to antitrust regulations as an example of government overreach, his criticism of ‘over-regulation’ in general, as well as the historical viewpoint of the Republican Party on this issue, hint that a Trump administration may be inclined to let deals through that the previous administration may not have.

Still, there are still some significant headwinds that may work against any potential M&A explosion. The low interest rate, cheap borrowing environment that companies rode to record high deal making last month was already on its way out, and Trump’s stance on the Fed’s rate-setting policies hint that the process will only accelerate under the new administration. Perhaps the biggest question, however, is the President Elect’s own opinion on the matter. In a campaign rally speech just one month ago, the Donald vowed to block a proposed merger between AT&T and Time Warner, saying that it was “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.” Although this may have been nothing more than campaign bluster, such a statement is in direct contrast to the opinions of many of the advisors he is now surrounded by.

We may get some more insight into President Trump’s position on big corporate consolidations sooner than later. The existence of large proposed deals already in the pipeline, including Bass Pro Shops’ offer for rival Cabela’s, Qualcomm’s offer for fellow semiconductor manufacturer NXP, and a behemoth deal between Bayer and Monsanto, means that the Trump administration will be tested early on this point. The regulatory response of the new government will send a key signal to the market about its views on antitrust laws and could have significant implications for an already booming merger and acquisition market moving forward.

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