The 2016 general election in the US yielded results that not even the best prognosticators in the business predicted. With Donald Trump now the president-elect, what to watch for as he prepares to take office in late January is really anyone’s guess.
But here’s what we’ll be paying particular attention to as the coming weeks give us a clearer picture of how President Trump will govern a deeply divided nation.
We’ve been analyzing cross-border transactions with even greater scrutiny since Brexit at the end of June—and we’ve hardly been alone on this front. Now, as Trump prepares to take office, his explicit opposition to free-trade pacts like the all-but-dead Trans-Pacific Partnership will further chill an already cool market for cross-border deals that will also likely suffer from increased volatility in currency prices. But the bigger issue will be how a Trump administration handles Chinese investors, whose activity has been relatively well-received by US firms—especially those involved with tech—in recent years. A crackdown on foreign investment in the form of tariffs would hurt the US economy, as any benefits to trading in US goods and services from a weaker dollar are wiped out by higher fees for bringing those goods or services into other markets.
The $85B AT&T-Time Warner merger
The AT&T-Time Warner merger is massive, and more important than its $85.4 billion sticker price is that it represents further consolidation between creators and distributors of media content. So, this deal was always going to be scrutinized heavily by the administration of whoever won the election. Trump has said he thinks that this deal and 2013’s merging of Comcast and NBCUniversal represent “too much concentration of power in the hands of too few.” Since 1982, regulators have used the Herfindahl-Hirschman Index to measure concentration within an industry in order to evaluate the effects of a merger on competition in that industry. It helped block the Comcast-Time Warner Cable deal not that long ago and, as an objective metric, it could help block AT&T-Time Warner without much recourse to the populist politics that put Trump in office, should the deal even get that far.
A GP’s bread and butter: carried interest
Carried interest took a beating in this election cycle, making a household phrase out of a sticky bit of the tax code related to investment returns. But that’s not without good reason. Carried interest represents the share of profits that goes to a professional investor as a result of managing money for clients on their behalf—more or less. Rather than being taxed at the higher rate the rest of us pay on our income from wages, carried interest is taxed less even though it is often the bulk of the income earned by hedge fund managers and PE/VC firms outside of the much smaller up-front fees charged for their services; it’s the 20 part of the standard 2-and-20 payment structure. And it’s taxed in a way that Trump said during the debates he’d get rid of in order “to ensure the wealthiest Americans pay their fair share in taxes.”
VC’s capacity for innovation
Venture capital has been a driver of innovation in the US for decades. It has, as a result, drawn people to the US from all over the world to take a crack at creating the next big thing, or to first pursue an education at universities all over the nation before starting a company. Should Trump’s statements on immigration translate into policies restricting the relatively free movement of people into the US, and thus into positions at these companies or institutions, the pace of innovation could slow dramatically, shifting that potency from the US to places with a better balance between existing venture ecosystems and the legal infrastructure to support them.
Article by Adam Putz – PitchBook