The election of Donald Trump as President of the United States adds to a cascade of political events that have surprised observers and may have profound effects on global flows of people, capital, and goods.
While nothing is set in stone, Donald Trump and his administration have led us to believe that they are contemplating significant changes to areas that may, indeed, have an effect on North American M&A.
A new American protectionism?
Trump campaigned on a promise to renegotiate the North American Free Trade Agreement (NAFTA), which he has called “the single worst trade deal ever approved in [the United States of America]”. While Article 2202 of NAFTA allows for amendments to the agreement, the language in that article suggests that this can occur only if agreed upon mutually among the signatories. Nonetheless, under Article 2205, any party to the agreement can withdraw from NAFTA upon six months’ notice to the other parties, leaving the agreement in force and binding on the remaining parties.
It is uncertain how Canadian companies may be affected in either instance. However, in the event significant changes are made to NAFTA, or the agreement is abandoned altogether, the attractiveness of target companies that rely on North American free trade may be affected.
Notably, while Justin Trudeau has opened the door to renegotiating NAFTA, stating “if Americans want to talk about NAFTA, [he is] happy to talk about it”, the Globe and Mail reports that Donald Trump made no mention of NAFTA while unveiling his plans for his first 100 days in office. He did, however, express his desire to have the United States withdraw from the Trans-Pacific Partnership – another agreement Trump had campaigned vigorously against leading up to the election.
The future of mega-mergers
In cases where mergers of US companies require regulatory review, there have been some indications that a Trump administration would take a harsher line. As a candidate, Trump said he would block the mega-merger between AT&T and Time Warner. Indeed, his campaign stated that “Donald Trump will break up the new media conglomerate oligopolies that have gained enormous control over our information […] Donald Trump would never approve such a deal.” Given that the Republicans won the presidency and both houses of Congress, these plans may now become a reality.
However, history suggests that merger review may, in fact, be carried out with a lighter touch, especially relative to a Democratic administration. As the Financial Times notes, President George W Bush challenged an average of 14 deals per year over his tenure, with President Bill Clinton challenging on average 32 per year. In the first six years of the Obama administration, the Department of Justice on average challenged 17 deals per year. The Financial Times observes that most advisers now expect that Trump will follow his Republican predecessors.
What do dealmakers think?
To the extent that M&A hinges on the confidence of the parties, it is worth noting what dealmakers think about a Trump victory. Survey evidence taken before the election paints a mixed picture: in March, Bloomberg reported that the M&A community (e.g., bankers, lawyers) favoured Trump over Hillary Clinton when it came to business interests, including M&A; however, in a separate, global survey taken in April by Intralinks Holdings, Inc, the overall consensus was that Trump would be bad for business and M&A.
Now that Trump has been elected, many dealmakers are expressing optimism about the deal climate that will emerge over the next four years, even if it is not the one they predicted. Trump is widely expected to bring in lower personal and corporate taxes and a less burdensome regulatory environment. In addition, many are predicting a boom for M&A in specific industries, such as pharmaceuticals.
But before Trump’s specific policy proposals become clear, uncertainty could prove a weight on deal-making. These potential changes may affect both the timing of deals—as parties may wish to keep their powder dry until the implications become clearer—and the kinds of deals that are ultimately attractive to dealmakers. Indeed, as the years after the credit crisis show, uncertainty tends to dampen the overall dollar value of M&A activity. In the days and months to come, dealmakers will need to keep their antennae up as these developments unfold. Norton Rose Fulbright’s Canadian deal lawyers are monitoring these events carefully.
This blog post is in no way intended to be partisan or to express any political views regarding President-elect Trump or his administration.
The author would like to thank Joe Bricker, Articling Student, for his assistance in preparing this legal update.
Stay informed on M&A developments and subscribe to our blog today.