The Trump Administration s Potential Impact on Business

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1 The Trump Administration s Potential Impact on Business Susan Hendrickson Joshua Milgrim Eric Siegel Michael Weiner Jeremy Zucker 2017 Dechert LLP

2 Introduction Impact of new administration on business activity, deal terms and the deal-making process Panel General environment Specific drivers The Trump Administration s Potential Impact on Business 2

3 Uncertainty Certainty as a factor in business activity Macro uncertainty Deal certainty and risk allocation Effects of uncertainty Postponement as a rational strategy Proceed with caution The Trump Administration s Potential Impact on Business 3

4 Favorable Economic Environment Interest rates remain low Borrowing to finance acquisitions is cheap Lack of organic growth Chasing investment yields Companies and funds with cash to deploy Rising stock market Investor confidence as fuel for business activity The Trump Administration s Potential Impact on Business 4

5 Favorable Policies Financial deregulation Return of PE funds housed in large banks Easier access to public capital markets Deregulation in general Lowers costs, removes barriers Certain sectors likely to benefit greatly Energy Defense Healthcare Infrastructure The Trump Administration s Potential Impact on Business 5

6 Specific Drivers Lower Taxes More cash for investment boosting buy-side activity More profitable exits boosting sell-side activity National Security & Trade Nationalistic policies may shrink the pool of potential buyers Antitrust Looser regulation may expand the pool of possible deals, but there may be exceptions Healthcare Reform The Trump Administration s Potential Impact on Business 6

7 Tax Proposals Proposed Reductions in Tax Rates Individual Rates: capped at 33% Individual Rates on Capital Gain, Dividends and Interest: 50% of the applicable rate (e.g., 16.5% for top bracket) Corporate Rates: 15% (Trump) 20% (House) Radical Change for Partnership/S Corps/Sole Proprietor businesses: 25% Tax on the Business Repeal ACA 3.8% Tax Eliminate all AMT The Trump Administration s Potential Impact on Business 7

8 Tax Proposals Character changes No deductions for interest expense Deduction of capital expenditures Carried Interest uncertainty The Trump Administration s Potential Impact on Business 8

9 Tax Proposals Repatriation opportunities and risks Existing offshore cash subject to one-time 8.75% tax on repatriation of cash or cash equivalents (3.5% otherwise, e.g., IP, PPE) CFC regime would be largely eliminated, and no tax on future repatriation of offshore cash Border Tax The Trump Administration s Potential Impact on Business 9

10 Tax Proposals Potential impacts on structure and types of deals Valuation issues: tax assets, tax liabilities Corporation versus partnerships Financing costs and structures, and financial covenants The Trump Administration s Potential Impact on Business 10

11 Trade Policy Three campaign promises: 1. Withdraw from TPP 2. Label China a Currency Manipulator? 3. Renegotiate NAFTA Motivations: Trade Deficits, Jobs The Trump Administration s Potential Impact on Business 11

12 Trade Policy Potential impact of NAFTA withdrawal U.S. market less attractive Currency volatility Potential impact of trade war with China Less Chinese FDI Higher tariffs imposed by both China and U.S. Chinese dumping of U.S. assets The Trump Administration s Potential Impact on Business 12

13 Sanctions Reverse Obama Administration Trends? Sanctions on Iran, Sudan and Cuba Sanctions on Russia When and to what extent? With or without European Union? The Trump Administration s Potential Impact on Business 13

14 CFIUS Steadily increasing number of CFIUS reviews in recent years Traditional presidential authority meets new presidential willingness to use it? Evaluation of transaction on its own merits vs. context of national industrial policy and/or new economic benefit Potential support for using CFIUS reviews as a bargaining chip re market access ( investment reciprocity ) The Trump Administration s Potential Impact on Business 14

15 FCPA Enforcement of FCPA remains aggressive AG Sessions committed to continue to enforce Significant pipeline of open investigations suggests little change in near term (e.g., Pilot Program extended) Questions over medium to long term Same pace/vigor? Companies vs. individuals? U.S. vs. non-u.s. targets? The Trump Administration s Potential Impact on Business 15

16 Antitrust Substantive antitrust treatment Who s on the team? "There will not be political influence in that process." Specific Industries: Healthcare insurance: the lines around the states Media: the enemy of the people? Amazon? Regulatory humility? America First antitrust? The Trump Administration s Potential Impact on Business 16

17 Antitrust Procedural antitrust treatment More streamlined investigations? The Trump Administration s Potential Impact on Business 17

18 Healthcare Sector Where are we now: Affordable Care Act (Obamacare) Enacted March 2010 Most provisions effective at start of 2014 Provided health insurance coverage to approximately 20 million previously uninsured Americans Expanded state Medicaid Programs approximately 15 million (of the 20 million newly insured) obtained coverage via Medicaid expansion - Changed Banned coverage denials for pre-existing conditions - Maintained The Trump Administration s Potential Impact on Business 18

19 Healthcare Sector Individual mandate - Eliminated Mandated insurance plans include a minimum package of benefits Partially maintained The Act 2,700 pages Regulation 10-20,000 pages Health and Human Services can amend without Congress Of the 2,700 pages nearly half were focused on innovation projects Many of the innovations (bundled payments, ACO s) have become entrenched in delivery and payment models The Trump Administration s Potential Impact on Business 19

20 Healthcare Sector American Healthcare Act (Ryancare/Trumpcare) Changes include: Eliminate individual and employer mandates Eliminate Obamacare taxes Medicaid reform (timing unclear) Tax credits to fund individual insurance purchases Obamacare: based on family income, age and local cost of insurance Ryancare/Trumpcare: based on age only and phased out at income above $75,000 per year The Trump Administration s Potential Impact on Business 20

21 Healthcare Sector American Healthcare Act (Ryancare/Trumpcare) Change federal funding of Medicaid to a fixed amount per beneficiary Incentives to fund medical savings accounts Obamacare: $3,400 (individual), $6,750 (family) Ryancare/Trumpcare: $6,550 (individual), $13,000 (family) 30% surcharge on premiums if insurance coverage lapses The Trump Administration s Potential Impact on Business 21

22 Healthcare Sector Eliminate taxes and fees that help pay for expansion of insurance coverage Taxes on: Insurance companies Brand name prescription drugs Medical devices Individual and employer penalties The Trump Administration s Potential Impact on Business 22

23 Healthcare Sector Value Based Initiatives will continue. Products/Services that: health outcome cost Consolidation REIT activity Health Info/Telemedicine Relaxation of Regulations The Trump Administration s Potential Impact on Business 23

24 Healthcare Sector The Trump Administration s Potential Impact on Business 24

25 Deal Terms and Process Evolving due diligence & representations and warranties National security concerns with buyers identities and foreign entanglements Buyers with an offshoring reputation and targets with offshoring built into projections Target s interest expense, import activity FCPA enforcement under AG Sessions The Trump Administration s Potential Impact on Business 25

26 Deal Terms and Process CFIUS Buyers will want to condition closing on CFIUS approval Sellers will want agreement on concessions buyers are willing to make Discounts applied to foreign bids to reflect uncertainty Sellers will try to protect themselves with break fees or premium price The Trump Administration s Potential Impact on Business 26

27 Deal Terms and Process Antitrust Potential impact of new administration on incentives for break fees The Trump Administration s Potential Impact on Business 27

28 Deal Terms and Process Other Tax matters Clawbacks for tax changes Changes to rate assumptions/fixed rate multipliers The Trump Administration s Potential Impact on Business 28

29 Deal Terms and Process Material Adverse Change Parties parse more carefully and negotiate more rigorously, common and previously standard language More robust definitions with fewer exceptions, especially re changes in law Executive orders, informal interpretive guidance, trade wars, military conflicts, announcement impact re comments by the president if foreign buyer Parties reassess previously accepted risk allocations The Trump Administration s Potential Impact on Business 29

Speakers Susan M. Hendrickson Partner Healthcare susan.hendrickson@dechert.com + 1 609 955 3206 Joshua Y.

Siegel Partner Corporate & Securities eric.siegel@dechert.com +1 215 994 2757 Michael L. Weiner Partner Antitrust/Competition michael.

30 Speakers Susan M. Hendrickson Partner Healthcare Joshua Y. Milgrim Partner International & Domestic Tax joshua.milgrim@dechert.com Eric S. Siegel Partner Corporate & Securities eric.siegel@dechert.com Michael L. Weiner Partner Antitrust/Competition michael.weiner@dechert.com Jeremy B. Zucker Partner International Trade and Government Regulation jeremy.zucker@dechert.com The Trump Administration s Potential Impact on Business 30

31 For further information, visit our website at dechert.com. Dechert practices as a limited liability partnership or limited liability company other than in Dublin and Hong Kong.

Gregory Husisian. Anticipating and Controlling International Trade Risk Under the Trump Administration. Considerations for PE Funds.

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