I attended a conference of M&A professionals in the US Mid-West just after Donald Trump was elected and despite the rawness of the election result, a consensus of sorts emerged on how the next couple of years will pan out.
Whilst most people expressed a nervousness at the unpredictability of his policy agenda, there is a collective optimism that he will deliver fiscal policies which will stimulate the economy and help extend an eight-year M&A cycle.
Reduction in corporate tax from the current 35% is expected to drive funds back into the US for investment as firm’s repatriate. Personal tax reductions for the upper and middle classes, including reformed capital gains tax, will help grow consumer spending. Increased infrastructure and defence spending and the subsequent multiplier effect is expected to drive GDP growth across the whole country. As a consequence, interest rates are expected to rise in 2017.
Amongst other things, this is already delaying some M&A until after Trump's inauguration as sellers wait to benefit from CGT changes. Rising interest rates may help to unlock the sale of privately held businesses as it offers vendors improving returns on their proceeds from the money markets. The ‘bifurcated’ market, split between the higher quartile and lower quality companies, is not likely to change in 2017 and prices for quality assets will remain at an all-time high; they have now had 18 months of a peak. Put crudely, the message to vendors of high quality assets is that "there has never been a better time to sell your business".
Mr Trump's recent thanksgiving address is sure to further build the optimism, which should be positive for the UK.
President-elect Donald J. Trump asks everyone to join together under the shared resolve to Make America Great Again for all people