Trump and the Republicans win. Expect cross border M&A to increase. European companies best prepare now.Robert M. Goldman, CFA
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The U.S. stock market is obviously surging on Trump’s victory. Seems reasonable – some of the regulatory burdens on U.S. companies will likely lessen under a Trump administration, corporate and individual tax rates are likely to fall, and repatriation of U.S. company money in Europe to the U.S. is likely to happen with no or little tax consequence. And, of course U.S. bond yields are surging as investors anticipate an accelerating economy. This will lead to a stronger U.S. dollar.
At the same time, the EU central bank continues to ease and financial regulatory burdens in the EU will increase under MiFID II (see my posting of November 7, 2016) set for implementation January 1, 2018.
Growth is already greater now in the U.S. as compared to Europe and the growth gap in favor of the U.S. is likely to increase. It’s reasonable to expect European equities will lag those in the U.S.. And, a stronger U.S. dollar will allow U.S. companies to pick up European companies on the cheap.
There’s not much European companies can do regarding the European regulatory environment. I project it will become increasingly difficult for European companies to garner institutional investor interest and I believe companies in Europe would be well suited to do what they can now to build and maintain relationships with high quality institutional investors and corporations. Developing an outreach program now could help European companies maintain their independence (or at least make themselves more expensive to would-be acquirers) and provide the European companies with more leverage when the acquirers inevitably come knocking. The alternative to developing an outreach program now could prove very expensive indeed for current European company owners and other stakeholders.