By Lina Saigol, Paul Clarke
Under both former President Barack Obama and Trump, private-equity executives have been given tax breaks on carried interest payments. “A more draconian approach can suppress deal activity,” said Cornelia Andersson, head of M&A and capital raising at Refinitiv.
“We’ve seen particular examples of this in the financial sponsor and PE-backed market where proposed taxation reforms affecting certain types of financing or carried interest may slow PE-backed acquisitions or even hawkish fiscal policy,” Andersson added.
Overall, Trump has been supportive of business. In 2017, Congress passed a Republican-backed tax law that helped companies build up acquisition war chests by removing obstacles to repatriating their overseas profits back to the U.S. According to the commerce department, companies booked $776.51 billion in profits made overseas in 2018.
His first term in office has coincided with a rush in M&A activity — with the value of deals up by 62% compared with the number during the same period for Obama’s Democrat administration, according to Refinitiv.
“President Trump is viewed as being pro-business, although his administration has blocked or attempted to block several deals, citing antitrust reasons or national security concerns,” said Alan Wink, managing director of capital markets at tax consultant EisnerAmper.
Since Trump took office, there have been over 500 withdrawn deals, or around 16% of the total, compared with 11% under Obama’s first term. In 2017, AT&T /zigman2/quotes/203165245/composite T 0.00% ’s $85 billion merger with Time Warner prompted Trump to claim the deal would place “too much concentration of power in the hands of too few.” His Justice Department filed a lawsuit to block the deal, but the two companies were eventually given the go-ahead to complete their merger.
One year later, Singapore-based microchip maker Broadcom /zigman2/quotes/200646538/composite AVGO -2.92% withdrew its $117 billion bid to acquire Qualcomm /zigman2/quotes/206679220/composite QCOM +0.35% after Trump blocked the attempted takeover, citing national security concerns.
Refinitiv’s Andersson cited President Trump’s 2017 executive order banning Chinese investment firm Canyon Bridge Capital Partners’ planned $1.3 billion acquisition of Lattice Semiconductor /zigman2/quotes/204117531/composite LSCC -0.09% , which sent a signal to Beijing that Washington will oppose takeover deals that involve technologies with potential military applications.
“In recent years, we’ve seen an increase in the scrutinization of cross-border technology, infrastructure and data deals, specifically,” she said.
Trump has ramped up the rhetoric against China in recent months, offering tax credits for American companies that relocate manufacturing facilities to the U.S. from China and encourage more investment at home.
Biden is seen by many in the industry to be more open to cross-border acquisitions, allowing U.S. companies to freely expand abroad.
“Non-U.S. buyers will be more likely to seek U.S. acquisition targets and U.S. companies will be more comfortable making acquisitions abroad without fear of a stinging tweet from the White House,” Aquila said.