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2018: Let the good times roll

Tax reform, plentiful capital could push valuations even higher

Let the good times roll

December 28, 2017

By: Mark Scott

The corporate tax reform signed into law by President Donald Trump could spawn a new wave of dealmaking activity in the new year.

“The significant reduction in corporate tax rates and the potential for repatriation of as much as $1 trillion of U.S. corporate cash abroad will be huge,” says Jeffrey Kadlic, co-founder and managing partner of Evolution Capital Partners LLC. “I would expect corporate acquisition activity to increase and it could be a substantial increase. Given the amount of uninvested private equity capital, corporate buyers have been relatively less active over the past few years.”

Here’s a look at what local M&A experts had to say when asked what to expect in 2018.

Stewart KohlStewart Kohl, co-CEO, The Riverside Co.: We anticipate another busy and generally bullish year. The strong public equity market returns of 2017 could lead to more private activity in 2018. Tax reform could push asset values even higher, which is good news for owners, but not for folks who are looking to buy more companies. Capital will be plentiful and available. We expect some Fed rate hikes, but that will only dampen things around the edges.

Bill MulliganWilliam C. Mulligan, managing partner, Primus Capital: There remains a significant amount of uncalled private equity and cash on corporate balance sheets, so I don’t see any reason to think the market will slow much. At Primus, we plan to continue to focus on investing in high-growth companies in the health care, software and technology-enabled services sectors. In a growing economy, we believe there are attractive opportunities to invest in companies that have business models that disproportionately scale profitability with revenue growth.

John SaadaJohn Saada, Jr., partner, Jones Day: More private equity capital available and new funds. There are new funds in Cleveland like Align Capital Partners that was able to raise over $300 million. Other existing local firms like Morgenthaler, Riverside and Primus have recently raised hundreds of millions of dollars. Although those funds don’t focus on Cleveland investments, as they grow, they hire more professionals and increase their presence here. Cleveland has an extremely solid private equity community.

Jim KlesselJim Klessel, partner, EY’s Transaction Advisory Services Practice: You are seeing a convergence across all industries with the technology sector. Businesses are being pushed by customers for new and more innovative products and services. This is impacting most industries, so I think you’ll continue to see companies looking to acquire assets that can move their business model and keep up with constantly changing customer demand.

Jeffrey Kadlic

Kadlic: We live in a world where terrorist events, sovereign default risk and natural disasters have material and immediate impact on the global economy, so seeing with clarity is a challenge. Having said that, the table is set for a terrific M&A market in 2018. Inflation is in check, the economy is repairing itself and has accepted anticipated interest rate increases, record low unemployment, residential real estate value is improving and capital markets are flush. These are some of the drivers of a great economy and they are all headed in the right direction.