M&A Boom Seen in 2017 on Tax Breaks on Foreign Profits

The recent spate of mega deals suggest that uncertainty surrounding the potential effects of Brexit and the U.S. presidential election has lifted. This means the global M&A market is poised for strength in 2017, deal-making experts told attendees at The Deal's Deal Economy event in New York City Thursday.

That's especially true of the U.S., where corporate tax changes are likely to spur M&A activity, according to the experts, including a financial strategist who served as an adviser to the campaign of President-elect Donald Trump. The discussion focused on the outlook for global markets and transactions.   

"I think the U.S. will continue to be the place to make acquisitions," Paul Parker, Global Mergers co-chairman at Goldman Sachs Group, said at the meeting. Parker added that until the wave of European elections pass, the U.S. is likely to dominate the near-term deal environment.

Parker was joined by William Casey, Americas vice chair of transaction advisory services at Ernst & Young LLP, and Global Market Advisers Chief Strategist Jonathan Galaviz, who also served as an adviser on national Hispanic outreach and Asia-Pacific economics to the Trump campaign. Brian Sullivan, co-host of CNBC's "Power Lunch," moderated the session. 

Galaviz pointed to Trump's comments on corporate tax repatriation as a major catalyst for deals in the U.S., forecasting that barring any resistance from Congress, the Trump administration should successfully pass a temporary tax holiday for the repatriation of overseas funds. 

"That's going to be one of the biggest one-time inbound inflow of capital that America has ever seen," Galaviz added, a surge that Sullivan characterized as a rain of gold upon companies lucky enough to be at the end of the rainbow. 

Parker later cautioned that visions of a massive tax repatriation seem somewhat optimistic, though he conceded that if they pan out, a "very big boom" in M&A would materialize along with an uptick in share repurchases.

Any repatriation would also bring down the corporate tax rate, a move that Casey believes will make America all that more attractive to dealmakers outside the U.S. There's also an abundance of growth opportunities beyond America's borders, notably in Latin America and parts of the Asia-Pacific, he added. 

"A lot of outbound Asia-Pacific deal flow is in the midst," Galaviz said, explaining that it's not entirely a "China story," with more and more activity in areas like travel, leisure, gaming and hospitality. 

The panelists later turned to discussing any impact that a federal interest rate hike could have on deal making. Parker said a raise could end up reshuffling strategic and financial priorities. It could also diversify and create more entry points in the private equity market, he added. 

Panelists agreed that mid-size deals will be more common than the $10 billion-plus transactions experienced in 2015 and in October of this year. But while middle-market companies will likely continue to be willing to "acquire and be acquired," the environment will become more strategic, Galaviz noted. Similarly, Parker said he expects that those mid-size deals, generally below $1 billion, will draw in more buyers, generating greater M&A activity. Nevertheless, the mega deals aren't dead yet, he reiterated.

Sullivan closed out the panel by asking the participants to outline their biggest concerns for the next 12 months. Parker expressed uncertainty over the geopolitical environment, noting that it all depends on how the U.S. will lead.

"We'll see how well the U.S. leads or missteps in that regard," Parker said, adding that he expects many geopolitical issues to remain under control. 

More from Mergers and Acquisitions

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Square Shares Shake Off Concerns About PayPal's Deal for iZettle

Square Shares Shake Off Concerns About PayPal's Deal for iZettle