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Mid-Market M&A in the US

By Maurice Watkins 06 Oct 2017

The political and economic climate in the US is good news for mid-market M&A

November 2016 marked the beginning of a period of uncertainty for public and private markets around the world. Among Donald Trump’s heated pre-election topics were immigration, tax and antitrust reform. However, despite continued uncertainty amongst all three, US markets have returned consistent gains and since November 8, 2016, the S&P 500, Nasdaq Composite and Dow Jones Industrial Average have risen 14 per cent, 20 per cent and 16 per cent respectively.

This political and economic climate is likely to have three effects on mid-market M&A transactions: (i) an increase in transaction volume following a nine month bull market; (ii) a move towards lower-profile deals that will stay below the Committee on Foreign Investment’s (CFIUS) radar and; (iii) an increase in US acquisition targets by foreign companies as a defensive play against uncertainty around H-1B visas (allowNew York - Central Parks US employers to employ foreign workers in specialty occupations).

Some of the President’s most vocal economic rhetoric has been “America First”, and that as a country the US should “buy American, hire American.” Through the CFIUS the President may prohibit any merger, acquisition or takeover of a US business by a foreign person. The immediate question is what impact will this have on foreign acquisitions of US companies? While it is too early to tell, acquirers will probably avoid large cross border transactions that require regulatory and antitrust approval as deals of this size could take up to 12 months or longer to consummate and therefore run the risk of dragging into less favourable market conditions.

Increased scrutiny and employer requirements for H-1B visas will put pressure on foreign firms in select industries to secure US talent. Specifically, US Citizenship and Immigration Services (USCIS) included computer programmer positions as potentially no longer eligible for specialty occupation designation and an H-1B visa. Indian tech firms command the highest percentage of the roughly 85,000 temporary H-1B visas issued each year, accounting for 65-70 per cent of those visas annually. On top of this, there is legislation in the works to increase the minimum annual
wage of H-1B visa holders to US $130,000, which is more than double the current US $60,000 wage with the theory behind this increase being to make it more difficult to replace American workers with less expensive outsourced talent. Indeed, some of the largest Indian IT firms have recently made US acquisitions to hedge against visa uncertainty with notable transactions including Wipro’s acquisition of cloud-based business enterprise service provider Appirio for US $500 million and Tech Mahindra’s acquisition of the healthcare IT consulting firm CJS for US $110 million.

Of course, it is difficult to predict exactly how the political climate will shift and impact the equity and M&A markets in the near future. Nevertheless, with off-shore companies increasingly relying on non-immigrant visas to source their US-based labour combined with an aversion to US regulatory scrutiny there should be increased levels of M&A activity in the mid-market both at home and overseas. This will make for a strong second half of 2017 for Results’ clients and relevant buyers alike.

 


To read The Bulletin: Transforming Business, in fullIssue 68

 

 

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Maurice Watkins

Partner

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