Potential Effects of the Trump Administration on Publicly Traded Private Equity Firms

The election of President Trump in 2024 heralds significant changes for publicly traded private equity firms. Anticipated shifts in regulatory policies, antitrust enforcement, and economic strategies may create an environment conducive to increased mergers and acquisitions (M&A) activity and potential deregulation.¹ Today’s article explores how the Trump administration's policies could impact these firms, focusing on the likely rise in M&A activity and the effects of deregulatory efforts, based on insights from industry experts and legal analyses.

Increase in M&A Activity

The private equity sector is poised for robust M&A activity, driven by positive economic trends:

• Waning Inflation: As inflation diminishes, the cost of borrowing stabilizes, encouraging investment.²

• Anticipated Interest Rate Cuts: Lower interest rates reduce the cost of capital, making financing for acquisitions more attractive.²

• Optimism for a Soft Landing: Confidence in the economy's ability to avoid a recession boosts investment sentiment.²

Private equity and private credit firms have substantial funds ready for deployment.² A backlog of portfolio company exits is expected to invigorate the market going into 2025, setting the stage for a surge in investment activities and strategic acquisitions. According to JD Supra, these conditions suggest that the sector is ready to capitalize on emerging opportunities.²

Deregulation as a Catalyst

Regulatory changes under the Trump administration may further stimulate M&A activity:

• Industry-Specific Opportunities: Deregulation may foster M&A in sectors such as energy (oil and gas), U.S.-based manufacturing, and fintech. A positive stance toward cryptocurrency and crypto services could also boost activity in the fintech and financial services sectors.²

• Executive Actions: Many deregulatory efforts can be implemented through executive orders without the need for Congressional approval, allowing for swift changes that could benefit M&A dynamics.²

Antitrust Enforcement Changes

The Trump administration is expected to revise or curtail the 2023 Merger Guidelines, which had expanded the framework for merger enforcement and introduced more stringent thresholds for presuming a merger illegal.¹ This shift is anticipated to:

• Return to Traditional Antitrust Principles: Emphasize objective economic assessments over novel legal theories, providing greater certainty regarding antitrust clearance based on evidence and economics.¹

• Favor Vertical Mergers: Restore the presumption that vertical mergers are pro-competitive, contrasting with the previous administration's skepticism toward such consolidations.¹

Less burdensome regulatory processes are also expected:

• Streamlined Investigations: Implementation of more focused “Second Requests” during antitrust investigations, likely resulting in shorter and more efficient reviews of proposed mergers.¹

• Limited Use of Prior Approval Provisions: A return to limited use in Federal Trade Commission (FTC) consent decrees means that parties would typically need only to notify the FTC of certain future transactions rather than obtain explicit permission, facilitating smoother transaction processes.¹

Reduced Scrutiny on Private Equity

Private equity firms may benefit from a less suspicious regulatory environment:

• Neutral Enforcement Approach: The administration is likely to focus antitrust enforcement on transactions that raise issues under traditional theories of harm, regardless of whether they involve financial or strategic buyers.¹

• Preference for Financial Buyers: In some cases, private equity buyers may even be preferred, recognized for their flexibility in investment strategies and commitment to divestitures when necessary.¹

Impact on Specific Sectors

Energy and Manufacturing

Deregulatory efforts are likely to create favorable conditions for investment in:

• Energy Sector: Reduced regulations may stimulate M&A activity in oil and gas industries, opening opportunities for private equity firms to invest in traditional energy resources.²

• Manufacturing: Incentives for U.S.-based manufacturing could lead to new investment opportunities, with deregulation potentially reducing operational costs and encouraging domestic production.²

Technology and Fintech

• Support for Cryptocurrency: A generally positive inclination toward cryptocurrency and related services could invigorate fintech and financial services sectors, presenting new avenues for investment.²

• Continued Scrutiny on Big Tech: Larger technology deals are likely to remain under heightened regulatory scrutiny, regardless of the administration. Private equity firms involved in significant technology transactions will need to navigate these complexities carefully.²

Environmental Policies

The administration's approach to environmental policies may involve:

• Withdrawal from International Agreements: Such as the Paris Agreement, signaling a shift away from global environmental commitments.²

• Rescinding EPA Regulations: Potentially reducing compliance costs for portfolio companies and increasing short-term profitability.²

However, reliance on less stringent environmental standards could result in non-compliance with Environmental, Social, and Governance (ESG) requirements from customers, states, or international markets. This may affect investment strategies focused on sustainability and could pose reputational risks.²

Tax Policies and Economic Implications

Proposals under the Trump administration may include:²

• Corporate Tax Cuts: Extending tax cuts from the 2017 Tax Cuts and Jobs Act and potentially lowering the corporate income tax rate to 20% or even 15%, which could reduce business taxation and incentivize onshoring or increased U.S. investment by private equity firms.

• Imposition of Tariffs: Tariffs of 10–20% on all U.S. imports and up to 60% on imports from China may create supply chain challenges, affecting portfolio companies reliant on global supply chains and potentially leading to increased costs and operational complexities.

Regulatory Leadership Changes

Changes in key regulatory positions may influence antitrust enforcement and financial regulations:

• Antitrust Agencies: Replacement of figures like the FTC Chair and leadership at the Department of Justice's Antitrust Division may lead to a more business-friendly environment, emphasizing traditional antitrust principles and reducing regulatory overreach.¹

• Financial Regulations: Replacement of roles such as the Federal Reserve Vice Chair for Supervision and the Acting Comptroller of the Currency may lead to deregulation, making bank lending more competitively priced and affecting private equity financing structures.²

Investment Scrutiny and National Security Considerations

Under the Trump administration, scrutiny of both inbound and outbound investments is likely to increase:

• Heightened Scrutiny on Foreign Investments: Aggressive measures aimed at protecting American industries, particularly in sectors such as technology, critical infrastructure, and personal data.²

• CFIUS Involvement: The Committee on Foreign Investment in the United States may experience heightened political involvement, especially with transactions involving Chinese investors facing stringent scrutiny and potential resistance.

Private equity investors must develop strategies to navigate potential national security risks from the transaction's inception, considering increased restrictions and compliance requirements.²

Conclusion

The Trump administration's policies are poised to significantly impact publicly traded private equity firms, presenting both opportunities and challenges. Anticipated increases in M&A activity, driven by deregulation and a favorable economic environment, offer substantial potential for growth. However, firms must carefully navigate potential obstacles, including increased scrutiny on foreign investments, changes in trade policies, and varying compliance requirements across environmental and labor regulations.

Strategic adaptability and proactive engagement with the evolving regulatory landscape will be crucial for private equity firms aiming to capitalize on these developments. By staying attuned to regulatory changes, adjusting investment strategies accordingly, and managing risks proactively, publicly traded private equity firms can position themselves to thrive in the evolving landscape shaped by the Trump administration's policies.

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_{1. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Potential Merger Enforcement Changes in the Trump Administration, 2024.}

_{2. JD Supra, 2024 Election Implications on the Private Equity and Private Credit Sectors, 2024.}

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