Trump’s Pоlicies Maу Bring Fresh Wave оf Deals

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Harry Campbell

With a man who is co-author of “The Art of the Deal” as president-elect, deal making can be expected to increase.

This rise will be determined by whether a Trump administration can govern with stability. A conciliatory and seemingly normal victory speech combined with a turnaround in the markets on Wednesday make that seem like a real possibility and bode well for mergers and acquisitions.

Part of the momentum will come from a change in tax laws. Donald J. Trump’s plan for individuals is to simplify and reduce. Instead of seven brackets, there would be three. Instead of a top rate of 39.6 percent, there would be a top rate of 33 percent on income over $225,000 for married joint filers.

But the biggest change could be in capital gains and carried interest. The 3.8 percent Medicare surcharge on capital gains would be repealed under his plan.

And carried interest would be taxed as personal income. This would mean a tax increase for the barons of private equity.

Under his plan, corporate taxes would be simplified and reduced. And there would be a one-time tax holiday for the repatriation of cash to the United States — the repatriation tax reduced to 10 percent.

So what will this do for deal making?

The Republicans have argued for years that a reduction in taxes will spur economic growth. The evidence for that is shaky. Nor are increases like the carried interest likely to reduce deal making. Private equity firms will find workarounds or simply continue with business as normal.

Yet structural changes in taxes and policy do generally spur or reduce deal making as industries realign.

Here we are going to see lots of change that will drive deal making. The Dodd-Frank Act is likely to be revised — some would say “watered down.” The Affordable Care Act may be amended. Mr. Trump has said he would seek to repeal it, but some provisions, like the requirements that there be no pre-existing exclusions, are too popular to repeal.

The result is likely to be a fresh wave of transactions in the health and financial industries as banks and health care companies realign to the new laws. Coming deficit spending may also spur more deal making in industries including construction.

One consequence of the increased government deficit spending and decreased taxes could be the long-awaited rise in inflation and interest rates. This is likely to drive more short-term deal making to capture the cheap money, but in the long term, it may do more than anything else to drag down deal making.

In addition, the ability of companies to bring back cash to the United States and the passage of corporate tax reform may stop the slow bleed of companies abroad and provide powder to mergers and acquisitions here.

In part, this will also be driven by the economy. If the economy stays stable and growing (albeit not greatly these days), then deal making will continue apace as the forces pushing companies together — industry consolidation and technological shift — continue. A weaker economy will mean fewer deals.

And of course there is trade. The trade deals pending, like the Trans-Pacific Partnership, are now dead on arrival. Others may be renegotiated.

As a result, companies may use deals to readjust to a more domestic orientation or to prepare themselves for a decline in trade. But untangling existing trade deals will be quite hard, so tinkering is more likely.

If Mr. Trump does move aggressively against China, this may also stem the growing Chinese investment in the United States. The national security review process is likely to be even more intensive, limiting Chinese investment.

And then there is the biggest factor these days in deals — antitrust. A Trump administration may not relax antitrust enforcement the way a normal Republican administration would. Instead, we may see tighter review of big mergers — indeed, as a candidate, Mr. Trump already called for the tie-up between Time Warner and AT&T to be blocked.

Make no mistake, huge shifts are coming that could markedly change how the economy functions and runs. This has the potential to bring back instability and perhaps throw the economy into decline. It may also go the other way, of course, spurring economic growth.

Either way, companies will be working to reposition themselves in this economy and buy growth. It all means that the long-term forces now pushing companies toward making deals are likely to continue, but with some big caveats, namely whether Mr. Trump can govern from a position of stability and consistency.


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