EY reasearch points out
US companies have their sights on M&A opportunities as they seek to deploy anticipated tax savings from US Tax Reforms, according to the EY Tax Reform Dollar Deployment Survey.
As companies combat digital disruption and seek innovation through a variety of avenues, 47 per cent said they will increase research & development (R&D) spend and 42 per cent are planning to use those savings to pursue M&A.
In addition, the survey found that almost three-quarters (73 per cent) of executives are likely to accelerate corporate M&A strategies for the year ahead. Of those respondents, 94 per cent plan to pursue transactions under $1 billion.
Impact of reforms on M&A activity and business investment
US and overseas companies with US operations are almost universally signaling a drop in their effective tax rates as a result of US tax reform. These significant tax savings will be joined by previously ‘trapped’ overseas cash that many US businesses are now repatriating to home soil, due to wide-ranging multinational tax reform –all leading to increased liquidity in the market.
Marc Middleton, EY Transaction Advisory Services,comments, “The reforms will result in a massive liquidity boost to the market which in turn will result in a redeployment of capital into and out of the US. This is likely to lead to a combination of investment in business operations, returns to shareholders and M&A activity.”
Companies with significant US assets to benefit
US assets will also become more attractive and valuable as a result of the reforms. Some companies will look to double-up and redeploy capital into the US while others – including UK businesses – may decide to take advantage of strong asset prices to sell non-core US assets, especially given the lower tax that will be paid on disposal proceeds.
This rise in asset prices could also offset the tax benefits for UK companies which were considering acquiring assets in the US. Indeed, European and UK assets could become more attractive if US companies increase their domestic focus, helping to lower competition and valuations elsewhere.
Looking forward
He concludes, “What is clear is that US tax reform will provide a shot in the arm to an already buoyant M&A market. Much of the increased firepower is likely to be focused in the US but international markets, including the UK, will also see increased activity as companies look to deploy the additional capital at their disposal.”
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