New Admin- Impact On Value
Prognosticating the impact of soon-to-be President Trump has become a cottage industry. As a valuation specialist, one area that is vastly under-opined is a look at what impact a Trump Presidency might have on valuations. In our view? Likely positive… with caveats. Let’s look at some issues that might impact value.
More on Taxes
Trump long campaigned on a series of pledges to reduce overall taxes. One interesting are is a “tax holiday” meant to stem so-called corporate inversions and other mechanisms to keep cash offshore and tax sheltered. Apple famously has over $180 billion overseas. In total U.S. companies are estimated to hold $1.4 trillion offshore. If companies are convinced to repatriate that capital back to the U.S, what might they do with it? One option would be to return it to shareholders – something that companies are often loathe to do. Another option: go shopping. A large repatriation of capital could spur significant M&A activity as companies seek to deploy capital swiftly. The effect? A lift in valuations.
Affordable Care Act
Love it or hate it, the Affordable Care Act (aka “Obamacare”) has been a big deal. Trump campaigned on the premise of repealing the act. To the extent that he does – and that healthcare costs decreases for small and medium businesses – the result could be an increase to the bottom line. Of course there’s a lot of assumptions baked in there: will it get repealed? Will insurance rates change? Will companies be stuck paying relatively the same rates in order to attract talent? Hard to say. But if business owners can reduce costs as a result, those reductions directly correlate to higher value.
It’s a pretty safe bet that the Trump administration won’t be supporting a $15 minimum wage anytime soon. I’m of the opinion that over the longer term such an increase will be inflationary: to support increased costs, companies will increase prices to bear those costs. But in the short term a dramatic increase at the low end of the wage spectrum is sure to hurt profits. At the very least guarding against an increase prevents a decrease in valuations.
Protectionists Trade Policies
This is a tricky one: protectionists policies might help some industries, but reciprocal actions from other countries are bound to have negative effects on others. Source all of your product in China? Probably best for your value if we don’t antagonize them into a trade war.