Under Trump, wait-and-see could displace M&A

Lower taxes, less regulation might prompt some business owners to hang on

Business owners looking to sell their companies may end up holding off next year to see whether President-elect Donald Trump, a political unknown, can improve the business landscape.

A delay in merger and acquisition activity is a definite possibility under Trump, who has promised to cut regulations and improve the tax climate for businesses, said Jason Cunningham, managing director for Philadelphia-based Baker Tilly Capital LLC, an investment banking and M&A advisory firm.

“The new administration is perceived to be more business friendly,” he said. “There is more optimism that regulatory concerns might go away. Some businesses could look at the landscape and if there is not a real driver to get out now, they might stick around and run the business a little longer.”

That could mean fewer M&A deals. But business owners don’t often time the market and usually sell companies for other reasons, including retirement and broader strategic goals in their industries, so the impact could be minimal.

Baker Tilly primarily tracks deals valued between $5 million and $200 million — known as the lower end of the middle market — in Harrisburg, Lancaster, the Lehigh Valley, Reading and Altoona/State College.

Through the first three quarters of 2016, there were 88 deals in the region, according to Baker Tilly’s data. That was down from 104 at the same time last year.

The most recent third quarter produced 29 deals in Central Pennsylvania, which was down from 36 in the second quarter. There were 29 deals in the third quarter of 2015.

The largest notable deal that closed in the third quarter was the purchase by Packaging Corporation of America of Tim-Bar Corp. in Hanover. That deal was for $386 million.

Also in the third quarter was Utz Quality Foods Inc.’s $144.4 million purchase of Golden Enterprises Inc., a snack food company based in Alabama.

In most cases, prices are not disclosed because most transactions involve privately held companies.

“In our world, uncertainty of any kind always makes people tap the brakes a little on M&A,” Cunningham said. “We saw that heading into this election cycle. From a business standpoint, it was a brutal election cycle and that creates some level of uncertainty.”

The first quarter was down over the year, while the second quarter rebounded a bit.

Heading into Election Day, there were concerns about a Clinton administration and the potential impact on capital-gains tax rates, he said. Business owners looking to do deals might feel “more comfortable” now under the billionaire real estate mogul.

However, M&A activity has been strong for a number of years as the financial markets steadily rebounded from the last recession, he said. The probability of another downturn during the next administration is seen as relatively high.

At some point, interest rates will rise and impact financing of M&A deals. 

“My sense is that we’ll continue to see a favorable M&A climate into 2017,” Cunningham said. “2016 was a little slower than 2015, but 2015 was a good year.”

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