With this month’s election results, the United States enters a new phase, one that will undoubtedly bring shifts in the regulatory and economic landscape. As we navigate these developments, TOBIN’s focus remains resolute in providing unparalleled client service, unwavering regulatory expertise, seamless advisory services and rock-solid operational support for our partners and clients.
As a prominent Managing Broker-Dealer and Chaperoning Broker Dealer in the U.S., and as a boutique M&A Advisor serving the middle market, TOBIN is eager to get this new ball rolling.
A Changing Landscape: Implications for Private Capital Creation
The return of an administration known for its deregulatory stance signals a loosening of some financial regulations and a focus on strengthening the health and vitality of our nation’s private capital markets. For business owners, sponsors and issuers, the political shift creates a notable opportunity.
Here is what TOBIN sees for the private capital markets:
- A continuing decline in interest rates, at least through the second half of next year. This will continue to lead to more accessible borrowing and increased momentum in capital formation and capital raising. This will also help to stabilize some real estate assets that have been encountering market difficulties.
- Passage of the Opportunity Zones Transparency, Extension, and Improvement Act. This legislation, introduced by bi-partisan measures, aims to extend the deferral period for qualifying capital gains through 2028 and enhance reporting requirements for qualified opportunity zones. With a fully Republican Congress set to be seated, this legislation will provide additional incentives for private investments in economically distressed areas, restimulating capital inflows and activity in the private placements marketplace.
- Increased activity in mergers and acquisitions (M&A). As asset valuations rise, previously undervalued assets may reach acceptable sale prices, facilitating exits and encouraging deal-making. We expect a steady rise in M&A activity in the coming two years, with sectors such as technology and healthcare expected to see significant transactions.
- A greater focus on viable secondary market trading platforms for private capital assets, especially for shares in Reg D private placement offerings. We expect the House Financial Services Committee to augment legislative efforts to improve liquidity and transparency in the private capital markets. We know several private-industry companies who are working on the solutions. We forecast productive results over these next four years.
- Acceleration of private equity funds’ pursuit of retail investors. While larger private capital raisers have historically raised capital from institutional investors, they know that the vast majority of private capital is held by retail investors in this country and that these investors are much more loyal to their issuers than institutional investors are. To be clear, retail investors have arms and legs, even if they are accredited. There will be lots of changes in what retail investors can invest in over the next four years as more issuers and sponsors pursue them and their wealth.
- Extension of TCJA. The Tax Cuts and Jobs Act of 2017 will likely be extended or even improved, enhancing the favorable tax environment for business owners considering the sale of their business, and offering benefits such as lower capital gains taxes and enhanced estate planning opportunities.
TOBIN believes that we have reached the bottom of a challenging capital-raising and M&A cycle and that we are poised for an upswing in market conditions. Lower rates, relaxed regulation and new thinking, combined with an economic climate encouraging growth, are expected to foster an environment where sponsors, issuers and investors can actively engage in increased rates of private capital formation. M&A activity will also be renewed.
Get Your Investment Banking Team in Place
During times of transition such as this, having the precision, expertise and experience of an investment banker is more critical than ever. As you prepare for the opportunities ahead, be sure that you have a reliable financial team in place. If you are a business owner, you need to have an investment banker who can advise you on the metrics of your company and how they will impact your sale. If you are a sponsor, it’s time to make sure that your managing broker-dealer is one that you like and that services you well. It’s going to be a lot harder to change that partner midstream as we move into this upcycle. The time is now.
Looking Forward: A Positive Outlook for Private Capital Formation
With the potential for easing restrictions, the elimination of some uncertainty and a shift toward lower interest rates, TOBIN anticipates increased private capital activity in the coming months and years. Whether you’re a business owner, sponsor, issuer, wholesaler or registered investment advisor, the path forward appears increasingly favorable for raising private capital. TOBIN is here to support you as you leverage these opportunities, helping you bring your vision to market with clarity, confidence, compliance and strong valuations.
For those of you looking to capitalize on this environment, we’re here to discuss how TOBIN can best serve your needs in the coming cycle of growth. Let us be your steadfast partner, ensuring that your capital-raising and M&A activities are efficient, compliant and strategically positioned for success.