For traders, the regulatory chaos would undermine Trump’s pro-business bent

With any other president, promises of less regulation and lower corporate taxes would make Wall Street’s business machine salivate at the prospect of a feeding frenzy. Not so with a potential Donald Trump presidency.

That’s because executives expect the Trump administration to bring with it political uncertainty, trade wars, protectionism and inflationary pressures that will slow merger and acquisition activity, interviews with bankers, lawyers and consultants show.

That leads some dealmakers to believe that the environment for corporate M&A activity might not look much different under either presidential candidate: Trump or Democratic rival Kamala Harris.

Instead, dealmakers are waiting for the uncertainty surrounding the outcome of the election itself to resolve, predicting that mergers and acquisitions will resume by early next year. In recent days, polls have estimated that Harris and Trump remain tied in the race for the presidency.

“When it comes to election cycles, uncertainty is often the main factor. Once we have a decisively elected president, that uncertainty will be removed and the markets will be able to predict the dynamics of politics with a little more clarity. ” said Scott Joachim, co-chair of the private equity practice at Paul Hastings.

Representatives for Harris and Trump did not respond to requests for comment.

A lot is at stake on the outcome of the election for Wall Street’s billions of dollars in revenue. While global M&A volume rose 14% to $2.85 trillion this year, deal activity has slowed from record highs in 2021, when corporate boards and buyout firms capitalized on near-zero interest rates to make more mega deals.

Several notable deals, such as Nippon Steel’s proposed $14.9 billion takeover of US Steel, have also faced regulatory hurdles and growing protectionism with more rigid national security reviews .

Even so, the data shows deal activity is slightly higher than levels seen during the first Trump administration. Between January 2017 and December 2020, deals worth an average of $1.63 trillion were signed annually in the US, with bankers at the time blaming a tough and unpredictable regulatory environment for holding back deals.

In the first three years of the Biden administration, deals worth an average of $1.9 trillion were signed annually, though those numbers were mainly boosted by the record 2021, according to Dealogic data.

Some investment bankers pointed out that the Trump administration also tried to block some notable deals at the time. In 2017, for example, the US Department of Justice tried to block AT&T’s acquisition of Time Warner. In 2018, Trump successfully intervened to block Broadcom’s takeover of Qualcomm on national security grounds.

One of the sources, who advises CEOs and board members, said based on his conversations, CEOs who have traditionally leaned Republican have become more cautious.

The source, who requested anonymity to speak about confidential conversations, said these people have been conditioned for decades to believe that low taxes and less regulation benefit their businesses, but now recognize that predictability also has significant value, even if difficult to quantify. .

To be sure, investment bankers and business lawyers said some of Trump’s promises would lift the constraints they faced during the Biden administration, which took a tough stance on antitrust and challenged several high-profile deals.

“Deregulation is widely seen as one of the election themes that would benefit from a Republican victory. The Democrats’ current proposals to raise the corporate income tax and capital gains tax would not help M&A activity,” said Weiheng Chen, a representative from Hong Kong. senior partner at Wilson Sonsini law firm.

“These two factors could have a bigger impact on the global level of M&A activity than the geopolitical risks that may persist regardless of which side wins this election,” Chen added.

Last week, Trump received an endorsement from Apollo Global Management CEO Marc Rowan, who said a Republican victory in the election would free up M&A activity and lead to investment liberalization.

But some bankers and lawyers argued that even a Harris victory would not necessarily slow merger and acquisition activity, as the U.S. Federal Reserve is expected to ease monetary policy in the near term, stimulating funding markets that lead to dealmaking. corporate.

“Regardless of the outcome of the election, the main deal drivers remain – companies and private equity sponsors looking to transact after a long period of having a warm M&A market,” said Eric Swedenburg, head of Simpson’s M&A practice Thatcher.