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NEW YORK /: Joe Biden’s projected victory for the US presidency and the Republican Party potentially retaining control of the US Senate could fuel a spike in mergers and acquisitions (M&A) that were hit amid from the COVID-19 pandemic, negotiators said.
Bankers and lawyers who advise companies on mergers and acquisitions said the result, if confirmed, was the best possible to provide the stable economic and regulatory environment that the negotiation needs.
They hope that Biden, the Democratic Party candidate, will be more predictable in government than Republican President Donald Trump, and that a Republican-controlled US Senate would curtail Biden’s more interventionist policies.
READ: Comment: The world has high expectations for the presidency of Joe Biden
“This dynamic can be quite conducive to deal making, because it provides stability,” said Peter Orszag, who served in the White House under President Barack Obama and now heads the financial advisory arm of investment bank Lazard.
“The only caveat is that there is less chance of another big round of stimulus, which would help the macroeconomic picture, than if the Democrats had taken the Senate,” added Orszag.
All major American television networks projected that Biden would win the presidency on Saturday (November 7), although Trump promised to continue to challenge the result in court.
Two second-round elections for the United States Senate will be held in Georgia on January 5, deciding which party will control the upper house of Congress, and Republicans prefer to maintain control based on this week’s recount.
Republicans with a slim majority in the Senate could block large swaths of Biden’s legislative and spending agenda, as well as key appointments to his cabinet and government agencies.
“Corporate leaders and markets like stability. Gridlock, in its own way, can be seen as a stabilizer, as we saw during the Obama administration,” said Cary Kochman, Citigroup co-head of global mergers and acquisitions.
While M&A activity surged in the third quarter as executives rushed to review suspended deals at the height of the coronavirus outbreak, global deal volume is down 12 percent so far. That goes for the year at $ 2.84 trillion, according to data provider Refinitiv. The volume of transactions involving US companies being acquired is down 32 percent so far this year to $ 1.07 trillion.
Negotiators said certainty about financial and regulatory policy will be crucial in the coming months to keep mergers and acquisitions going as a new wave of coronavirus infections spreads across the United States and most of the world.
“I would venture to say that some mergers and acquisitions have been delayed under the Trump administration, because Trump can sometimes be unpredictable with his Twitter account,” said Bill Curtin, global head of mergers and acquisitions at Hogan Lovells.
If Democrats had taken control of Congress, negotiators said the most disruptive aspects of Biden’s agenda would have been the tax increases. Biden has proposed raising the tax rate on capital gains from 20% to 39.6% for those who earn more than $ 1 million. This would have made it more expensive for corporate owners to retire their properties.
“The deals will not be as tax-driven as Biden is not expected to immediately carry out major reforms in America’s corporate or health tax systems,” said Patrick Sarch, partner at the firm. of White & Case Lawyers.
BARRIERS TO CHINESE ACQUISITIONS TO REMAIN
Scrutiny of Chinese acquisitions of US companies, which intensified under Trump, is expected to continue, negotiators said. In the past four years, the United States has blocked many Chinese acquisitions, especially of American tech firms, on national security grounds, and even ordered some Chinese firms, such as the owners of social media apps TikTok and Grindr, to sell them.
The United States’ deep suspicion of China’s economic power, technological advancements and accounting standards will likely result in many of the obstacles for cross-border investments to remain under Biden, the negotiators said.
“The nationalist focus and high degree of scrutiny on sensitive deals that have emerged in recent years will not go away anytime soon,” said Nestor Paz-Galindo, global co-head of mergers and acquisitions at UBS Group AG.
One business sector that could be one of the main beneficiaries of the election result is the oil and gas industry, negotiators said. Low energy prices have fueled a wave of consolidation in the oil patch in recent weeks, and this could continue unhindered as Republicans curtail Biden’s clean energy agenda.
“You’re going to see a bit of a surge in valuations in the energy sector. The market will feel like a Republican Senate will prevent Biden from regulating the US energy sector as much as it could have,” said Vito Sperduto, co-head of global M&A . at the Royal Bank of Canada.
