Trends to Consider 2019 started strong and ended stronger as fears of a global economic slowdown and disruptive trade wars failed to negatively impact the capital markets. The S&P 500 finished with a gain of more than 28% for the year, the second highest increase in the 2000s, while the 10-year treasury hovered near historic lows for most of 2019. With the economy in strong shape, the spotlight will turn to global geopolitical tensions and the upcoming US presidential election. As we move into 2020, the following are key trends to consider:
US ELECTION Uncertainty around the election has the potential to impact businesses and the M&A markets in 2020. Key items of focus include the future of trade and tax policies, as well as potential shifts in the regulatory environment. Lack of clarity surrounding tax practices going forward, including the corporate- friendly overhaul enacted in 2017, will lead US businesses to closely monitor the candidates and will create some uncertainty as we approach the primaries and general election. TRADE POLICY Global trade was a significant focus in 2019, largely driven by the US-China trade wars. With the phase one deal freshly signed, the trade negotiations between the two countries will continue to create a certain level of economic uncertainty. Many tariffs will remain in place on both sides, in some cases at a lower rate, continuing to impact companies across multiple industries. China has agreed to greatly increase US products and services purchased, reduce barriers to certain agricultural products, and attempt to better protect corporate intellectual property. The repercussions of the phase one trade deal, as well as further developments and negotiations between the two sides, will be closely tracked in the coming year.
MONETARY POLICY At the end of 2018, Federal
With low interest rates, financing is readily available for companies considering a potential acquisition, and ample sources of capital will continue to drive M&A activity into the new decade. Signs point to another strong year for M&A activity in spite of potential headwinds. Positive overall economic trends, low interest rates, the availability of capital and the desire of companies to acquire capabilities via M&A should outpace any potential slowdown in activity. How can business owners properly position themselves in this environment? Do you have a strategy in place to take advantage challenges to confront and factors to evaluate when contemplating the purchase or sale of a business. If your company is considering a transaction in 2020 – or just looking for strategic advice on issues such as succession planning or raising capital — be sure to engage a qualified advisor who can help provide the integrity and experience you need to make important growth decisions. of historically high valuation multiples? There are many
Reserve Chairman Jerome Powell and the rest of the central bank signaled higher interest rates would be necessary to control inflation heading into the following year. As it turned out, 2019 saw a central bank pivot to a more dovish stance as rates were cut three times. Inflation remains modestly below the central bank’s two percent target and unemployment dropped to its lowest level in 50 years, providing the Fed validation for keeping rates lower during this time. In December, the Federal Reserve signaled a steady rate target as an acknowledgment of the improved economic outlook. All eyes will be on this important indicator as we approach the general election. RECORD LIQUIDITY Private Equity has amassed record levels of liquidity, estimated at $1.5 trillion, and continues to raise increasing amounts of new funds. Due to durational limits in these funds, there exists an increasing sense of urgency to deploy this abundance of capital. Companies are also sitting on record amounts
of liquidity and will continue to focus on growth through
acquisitions, particularly looking to increase capabilities and improve efficiencies through technology.
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