Dechert

M&A lawyer: Obama win means more deals

November 7, 2012: 11:30 AM ET

Is it finally time to make some deals?

FORTUNE -- What does President Obama's reelection mean for the future of deal-making activity? To get some thoughts, I spoke with Bill Lawlor, a veteran M&A attorney with Dechert LLP.

What follows is an edited transcript.

FORTUNE: What do yesterday's election results mean for the M&A markets?

BILL LAWLOR: If Romney had won there would have been an unleashing of animal spirits in M&A that we haven't seen since the Reagan years. But, now that we know its Obama, we expect to see a steadier, flatter arc to increased M&A activity.

Let's break that out a bit. Are you expecting significantly increased in the final weeks of 2012?

Yes, our phones are ringing off the hook. The reason is the expiration of the Bush tax cuts which are, at the margins, pushing deals to get done this year because of expected capital gains tax increases. Not just M&A, but also a rash of dividend recapitalizations in which companies are using cheap debt to borrow and issue massive dividends under the 15% capital gains rates that are now in effect.

Are those dividend recaps mostly coming from private equity-owned companies?

Yes, it's mostly in financial sponsor deals at this point -- essentially firms that have decided not to sell right now because the differential in capital gains isn't enough to get a deal done, but who still want to take advantage of the current rates. To be honest, I'm surprised we didn't see more of these over the past couple of years, since cheap debt has been around for a while. We've also got a couple in the hopper involving widely-held public companies.

If a company decides today that it wants to launch a dividend recap process, can it get done by year-end?

Oh, no question about it. The market is very robust. And, from a structural technical standpoint for public companies, shareholder votes for these sorts of deals aren't typically required.

Considering the pending tax rate increases, does that mean acquisition prices will drop as buyers have to recalculate ROI?

I see that intellectually, but haven't seen it yet in pricing. From my perspective of over 30 years in M&A practice, 25% of M&A is on the technicals and 75% is CEO confidence. The two, while related no one another, are not entirely correlated. Now we know generally what the regulatory environment will be. What remains to be seen is if Obama can work with Congress. At least in the near-term, if they can deal with the fiscal cliff if would give a real shot in the arm to C-suite confidence levels.

What do you see longer-term for M&A?

Long-term M&A indicators are off the charts. There is over $1 trillion sitting on company books, there are absurdly low interest rates and organic growth numbers are very modest right now. That's opposed to M&A where, in the fundamentals, companies can often get accretive deals right off the bat. It's all teed up. The key missing ingredient is the CEO confidence I spoke about earlier, but I would see that improving.

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