Obama victory might encourage more deals

Tools

Will the victory by President Obama lead to a spate of more mergers and acquisitions, which would be good news for deal advisors? It just might.

Fortune put the question to Bill Lawlor, a M&A attorney with Dechert, who answered that, "Our phones are ringing off the hook. The reason is the expiration of the Bush tax cuts which are, at the margins, pushing deals to get done this year because of expected capital gains tax increases. Not just M&A, but also a rash of dividend recapitalizations in which companies are using cheap debt to borrow and issue massive dividends under the 15% capital gains rates that are now in effect."

Are private equity companies interested in generating more dividends?

"Yes, it's mostly in financial sponsor deals at this point -- essentially firms that have decided not to sell right now because the differential in capital gains isn't enough to get a deal done, but who still want to take advantage of the current rates. To be honest, I'm surprised we didn't see more of these over the past couple of years, since cheap debt has been around for a while. We've also got a couple in the hopper involving widely-held public companies."

There is little doubt that bankers and advisors are prodding clients in this manner. It may be premature to assume that the expiration of the Bush era tax cuts is "fait accompli". It is fair to say, however, that the Obama victory isn't necessarily a bad thing for deal advisors and financial sponsors.

For more:
- see this article

Related articles:
A buyer's market in M&A
Merger pace anemic but pockets of strength emerge

Filed Under