Will Cutting Corporate Tax Rate Spur M&A Activity?
According to an article on Bloomberg, there is a good chance that the corporate tax rate will get cut to 20 percent. This is a big step down from 35 percent; companies will be left with a lot of cash. With these new savings, will companies proceed to engage in M&A activity at a higher rate?
"It is probably going to look a lot like what Trump talked about in the campaign merged with the Republican House proposal, which was co-authored by the Trump people. So, we know Trump in the campaign talked about taking the 35 percent corporate rate down to 15 percent. That will go at least to 20, maybe to 15 — that could be the surprise next week. But at least to 20," Norquist said in an interview with "Power Lunch."
So, will this lead to more activity in this industry?
Reference:
Corporate Tax Rate
Definitely won't hurt it.
Will definitely stimulate asset deals in favor of stock deals. Not sure if it will generate M&A activity in general though.
I definitely think it will spur M&A activity. The problem will be getting the damn thing to and through congress. I'm not super impressed with this administrations ability to get legislation passed so far. We might know this week how feasible the Donald's ambitions actually are.
Debt becomes less advantageous as a tax shield. I don't think it'll create a crazy change in the M&A market though - there are plenty of other catalysts (availability of capital, market multiples, etc) that have a greater effect
I think by cutting corporate tax rates, US companies will be much more motivated to keep cash stateside, making it easier to use the cash. I think companies will see their local reserves of cash and use it for M&A or some other type of transaction to boost their company. What are y'alls thoughts on this? I'd love to hear any criticism on my viewpoint or agreeing. I think it's a very interesting discussion especially relevant with today's administration.
Unfortunately I dont think so. Companies rarely pursue m&a just because they have extra cash, at least not since the 60s.
More importantly, while corporate tax rate going down will obviously benefit businesses there has been a major clamp down on the tax loopholes for M&A. Big shakeup on Obamas way out surrounding tax code 386, and a few other closely related ones. That said, tax almost never drives a deal and only very rarely blows one up.
It will be interesting to see what effects boh changes have on tax free structures like MLPs. My hunch is again, not very much, although they will probably lag the growth in share price experienced by traditional corporations, especially if corporations make the textbook corporate finance Decision just to pay additional earnings to shareholders or pay down debt. Although in typing that last sentence maybe in the longer term lower debt levels allow for more agressive M&A...
Much more important than corporate tax rate, I beleive, is capital liquidity. This can taken few forms but the primary characteristic of CL is a low interest rate... and interest rates are on their way up.
So on the whole, despite more profits, I think M&A will decrease in the aggregate, but not by much.
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