M&A Update: Valuations, Executive Orders and Tweets

February 16, 2017

By this time of year, merger and acquisition forecasts have landed in the mailboxes of many deal professionals around the globe. As you probably have seen, many of those forecasts are positive, perhaps even bullish, about the 2017 outlook for M&A transactions. McGuireWoods produced one of those reports and shared a similar favorable viewpoint. However, firm lawyers are starting to give additional consideration to valuations in M&A transactions.

Since Jan. 20, the United States has witnessed a high level of activity from the oval office. In fact, to help answer the “What Did President Trump Do Today?” question, MarketWatch started a daily wrap called “Trump Today.” Continuing the trend, Google recently added an “Executive Orders” section to its news page, and many other trackers have shown up on other sites. Each new executive order, speech and tweet — regarded from any political viewpoint — has the potential to inject uncertainty into the market and possibly undermine valuations. On Feb. 3, several corporate CEOs met with President Trump to talk about some of those concerns.

In the M&A world, can buyers remain confident that the X multiple being paid to acquire a business will hold when there is such a high level of activity coming from the White House? In examining an investment, buyers may want to take a second look at certain things. Is the industry overregulated or underregulated? Will existing regulations remain or be cut back? Is that good or bad? How can a buyer build this uncertainty into the deal to better allocate risk? While as yet there is no visible hard evidence of valuation uncertainty, buyers may want to carefully consider these and other factors when determining value.