A Boost for M&A?

Republican control of the U.S. House may help mergers-and-acquisition activity pick up its pace.

The November midterm U.S. elections cast a new complexion on the political landscape, with Republicans capturing control of the U.S. House of Representatives and Democrats maintaining a slim majority in the Senate. What the new makeup means for mergers and acquisitions activity in the coming year remains a question mark, but several experts suspect it may contribute to more robust M&A activity.

M&A activity ultimately is a function of the economy, which has been improving, notes lawyer Morton A. Pierce, vice chair of law firm Dewey & LeBoeuf and co-chair of its mergers and acquisitions practice. That, combined with receding fears of a double-dip recession, companies' build-up of cash and the availability of cheap financing, will contribute to more robust M&A activity, he says.

However, there's also the added matter of perception. Pierce suggests that if people believe a Republican-controlled House will provide added focus on improving the economy -- versus a social agenda, for example -- that can contribute to additional activity. And for the business community, Republicans taking over the House "is a psychological plus."

At the national level, a divided Congress will dampen the "chaotic climate" of the past few years, predicts lawyer William E. Sigler of Maddin Hauser Wartell Roth & Heller. As a result businesspeople and investors will focus more attention on doing deals and less on trying to predict legislative impacts on the business and regulatory environments. Like Pierce, however, he says M&A is ultimately about the economy.

"M&A activity ultimately depends upon such traditional factors as valuation, perceived synergies and the availability of capital. The larger macro-economic climate will have a greater effect on these factors than the election," he says.

The change in House control likely will impact certain sectors, such as energy, more immediately than others, says Grant Thornton's Steve Brady. "We will see a boost in confidence and therefore a boost in the overall supply and demand for deals going into 2011," says Brady, the national managing partner of transaction advisory services.

He predicts that eventually the impact will move beyond specific sectors, as an improving economy boosts people's confidence that the time is right to sell their companies and therefore creates "opportunities for the record amount of capital that is out there looking for deals."

Sigler contends the outcome of certain elections may have a particularly strong impact on state economies, and cites Michigan as an example. "Michigan has elected a new governor [Republican businessman Rick Snyder] with extensive experience in business and M&A," he says. "His stated agenda is to provide a more favorable regulatory and tax climate, and a more streamlined state government with a balanced budget. Armed with the skills necessary to accomplish these goals, and with a little cooperation from the state legislature, the result could be very positive for the state economy."

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