Why GOP Victory May Boost M&A

Past Republican congressional victories have given a boost to merger and acquisition activity and the current political change could mean more of the same, according to several industry experts.


Historically, there has been an uptick in M&A activity and deal value after Republicans have gained control of either the House or Senate.

If you compare deal volume for 2002 (7,413) and 2003 (7,414) there is only a slight increase, but the value of the deals increased from $472.1 billion to $572.5 billion in 2003, according to data pulled by Dealogic.

In the 2002 midterm elections Republicans increased their majority in Congress by a wide margin.

While politics isn't the only factor that impacts mergers and acquisitions, it does play a role, says Hiter Harris, co-Founder of Harris Williams & Co, a middle market advisory firm that operates as a subsidiary of PNC Financial Services.

"This is an interesting election. It is likely to provide more visibility and certainty into issues such as taxes, the regulatory environment, and healthcare," Harris explained. "Visibility can give companies greater confidence to invest more and improve the deal environment."

Some of the visibility Harris is alluding to includes more certainty surrounding the future of the Bush tax cuts, which are set to expire at the end of the year.

Lawrence Golub, president of Golub Capital believes the results of the election could bring about more clarity surrounding these tax rates, which could boost M&A activity.

"If the lame duck session of Congress post election acts clearly, things will speed up. If there is gridlock on the expiring Bush tax cuts, M&A could well slow down," Golub said.

Paul Schneir, head of M&A at KeyBanc Capital Markets agrees taxes will play a major factor in deal flow in 2011.

"The biggest issue is taxes and weather there will be an extension of the Bush policy, and how that will impact private company sale transactions," Schneir said.

"If there is not an extension of the tax policy there will be deals that won't get done because tax rates will increase."


($m) No.
2002 Q1 89,295 1,820
2002 Q2 114,882 1,937
2002 Q3 169,539 1,872
2002 Q4 98,346 1,784
2003 Q1 86,737 1,657
2003 Q2 119,677 1,715
2003 Q3 134,263 1,780
2003 Q4 231,840 2,262
Source: Thestreet.com

Schneir adds that in politics perception means a lot, and the perception is that the Republican party is likely to be more business friendly, which could prompt more confidence from corporations and increase corporate transactions.

Frank Aquila, a partner in the mergers and acquisitions Group at Sullivan & Cromwell agrees that the Republican victory could boost M&A activity.

"With a strong victory by the GOP [yesterday], Congress will be very focused on the economy and meaningfully more pro-business," Aquila said. "All of that bodes well for the overall economy and … for the U.S. M&A markets going forward.”

“I expect that 2011 will be a very busy year in the M&A world," Aquila said.


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