In-House Counsel

Predictions For 2020!

It's an annual tradition: Predictions for the coming year!

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I did okay with my predictions for 2019:  At least some people say that private equity M&A had a busier year than public company M&A; women made some (limited) progress moving up in the law; and litigation finance continues to thrive.

But I’m not one to rest on my self-satisfied laurels:  What about 2020?

I’m starting with M&A again:  I predict that private equity M&A work will fall off a little bit in 2020, and public company M&A will come to the fore.

Why?

Funny you should ask.

Private equity firms must buy companies for a reasonable price; somehow make those companies more profitable; and then dispose of the companies quickly, to give investors a return on their money within a promised time.  That necessarily means that PE firms must flip companies quickly. 

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But it’s hard to buy a company for a reasonable price today.  There’s a lot of competition among buyers.  There’s a lot of dry powder on the sidelines.  Multiples have expanded, and prices are high.  It’s tough to find a company to buy at a bargain-basement price and then quickly flip for a profit.

Public companies, in contrast, can afford to be long-term buyers.  Many public companies are strategic, rather than financial, buyers, looking to acquire targets for a business purpose beyond merely flipping the company.  Those public companies want to own the target for the long haul.  Even public companies that want to flip all (or part) of a target have more flexibility than private equity firms:  Public companies generally haven’t solicited money from investors with the promise of a return within a specified time.  Public companies can thus afford to buy and hold.

When target companies can only be purchased for relatively high prices, I expect private equity M&A to slow, while public company M&A continues.  That’s prediction one.

Prediction two:  We’ll see a brokered Democratic convention in 2020.

Yeah, yeah:  Every four years we hear that this will be the year.  It’s always a lie.  There hasn’t been a brokered convention since 1952.  The primary system basically guarantees that the nominee will be picked before the convention.  This won’t be the year.

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I beg to differ.

The fact that there are many contenders in the Democratic race is not what I’m thinking about.  There were an awful lot of Republican contenders in 2016, and the convention wasn’t brokered.  Heck, there are always a lot of contenders — remember Fred Harris, Mo Udall, Sargent Shriver, and the rest of the Democrats in 1976? — and there’s still never a brokered convention.  We just quickly forget about the people who ran and lost.

But 2020 is the first time we’re seeing a candidate who isn’t really competing in the early states of Iowa, New Hampshire, South Carolina, and Nevada.  Michael Bloomberg seems to be passing on those contests and counting on making a splash on Super Tuesday.  I predict that Bloomberg’s tactic will upset the race.

Bloomberg will both effectively enter the contest late and change the thinking of folks who are competing in the early states.  With everyone aware that Super Tuesday could upset the apple cart, an unusual number of candidates may stay in the race until then, and beyond.

I suspect we’ll still have a fair number of Democratic candidates — billionaires Bloomberg and Steyer, who can afford to stay in the race forever, and perhaps three or four of the other candidates — still actively competing for the nomination in late March.  That makes this race different from the others. 

We’ll have a brokered convention.  This’ll be the year!

Finally, prediction three:  We’ll see a robust American economy in 2020.

I’m afraid this has become the conventional wisdom among economists, which makes this a boring prediction, but I’m making my prophecy for a (slightly) unconventional reason.  President Trump has some ability to influence the economy, by agreeing to trade deals, permitting federal payments to be made, and the like.  Since this is an election year, Trump has every interest in goosing the economy, and there’s no one in Congress to hold him back:  The Democrats tend to be free-spending, and Republican budget hawks have disappeared.  With reason to spend, and no reason for restraint, I’m predicting the economy does well, at least until the first Tuesday after the first Monday in November.

On the first Wednesday after a Monday in November, all bets are off.

This bull market’s getting awfully long in the tooth, and I predicted some years ago that it had to end eventually.  (Will I go out on a limb for you, or what?)  But I said it would continue through 2017, and I’m now extending that prediction through November 2020.

Those are my predictions for 2020.  And here’s my hope:  That you’ll have a happy and healthy new year!

Mark Herrmann spent 17 years as a partner at a leading international law firm and is now deputy general counsel at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Drug and Device Product Liability Litigation Strategy (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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