Here's Why the Election Will Have Little Effect on M&A

All politics are local. But politics -- and elections -- can extend well beyond either the dimensions of the voting booth or of the local precinct. The consequences of this week's national elections won't exempt the capital markets, including mergers and acquisitions.

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There are myriad implications to the merger marketplace resulting from this week's election results. Whether you're looking at regulatory oversight, tax policy or healthcare, there are consequences of Donald Trump's imminent ascent to the Oval Office and the Republican Party's control of Congress.

"At the end of the day, if we had to choose someone based on who was going to be the best candidate ... based on the campaign rhetoric, we ended up in the right place," Jeremy Swan, principal and national director of the private equity and venture capital industry at CohnReznick, a leading accounting, tax and advisory firm, said in an interview following the election results.

With the Trump presidency and the Republican control of both houses of Congress, "it's the most pro-business outcome we could ask for," Swan said. However, he noted there were some elements of the rhetoric bandied about in the campaign that could -- if translated into actual policy -- compromise the benefits of the outcome of the election.

 

The most immediate after-effect of the election is the rate hike that had been widely expected in December is off the table, Swan said. The Federal Reserve is going to want to keep rates constant at this juncture in order to assess the construction of the capital markets following the surprising outcome of the market.

"We're kicking that can down the road," he said. Were rates to ultimately spike, that would certainly damage financial sponsors' ability to finance transactions, of course. But Swan said that while rates may rise gradually, he doubted if they would surge dramatically higher.

However, there are more benefits than setbacks arising from the election results. Concerns about carried interest -- something that's paramount to financial sponsors -- have evaporated. If Dodd-Frank, for instance, is eliminated or radically altered, banks will no longer be stopped from making leveraged loans, adding more liquidity to the capital structure.

There are still some streams to ford. The surprising outcomes of both the Brexit vote and the U.S. elections suggest change is the operative condition of the globe these days. There are several elections in Europe upcoming that could promise further upending of the status quo.

"If the drive toward change continues," Swan said, "that can have a lasting impact on the markets."

But pointing to the response of the public markets in the U.S. to the election results -- futures plummeting overnight, only to have the equity market open higher and rise Wednesday and Thursday-- showed some welcome stability.

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