Overall M&A Market Commentary
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Heading into 2017 the business community had very high expectations for an improved U.S. economy. A more business friendly President and Federal government was viewed by many business leaders as a positive development and this optimism sent the Dow, NASDAQ and S&P equity averages to record highs. However, the new Presidential Administration learned that governing is vastly different than campaigning. Building consensus among politicians on health care reform, taxes and other issues is different than business “deal making.” Further, changing an entrenched Federal bureaucracy and reducing the government labyrinth is no easy task. A few early “wins” by the Administration may help settle the political terrain and gradually lead to a more normalized political environment. Change is in the air in Washington D.C., but the bureaucracy will not make it easy.
While M&A activity remained muted in 1Q17, President Trump’s emphasis on domestic manufacturing, job growth and trade protectionism may spur both domestic investment in manufacturing assets through plant expansions and acquisitions. Ford Motor Company, United Technologies’ Carrier division, General Motors and many others have announced plans to expand and invest in operations in the U.S. to avoid the President’s “twitter shaming” and other negative publicity. Furthermore, foreign companies, who want access to the large domestic markets will likely use M&A activity to secure domestic manufacturing assets and make more products in this country. While it is still too soon to determine the overall effects of these moves, it is expected that M&A activity will benefit.
Corporate tax reform is on the 2017 agenda and may also help drive future M&A activity. Lower domestic corporate tax rates and new incentives for investment could spur M&A activity. In addition, the proposed implementation of a tax repatriation plan could liberate between $2 and $3 trillion of cash held by companies outside the U.S., further increasing the amount of corporate cash available for M&A activity.
For additional insight on middle market M&A, valuation multiples, strategic buyer / financial sponsor activity, and more please download the full copy of the Prairie Middle Market Perspective.