Potential Tax, Spending Changes Could Drive M&As in Defense Industry; Baird's John Song Quoted

Market experts said another wave of mergers and acquisitions in the defense sector might be in the offing driven by possible changes in federal spending and taxes linked to any potential administration change, the Washington Business Journal reported Wednesday.

Joe Biden, former vice president and Democratic presidential nominee for the 2020 election, has proposed to increase capital gains tax rate from 20 percent to 39.6 percent and John Song, a managing director at Baird, said that could prompt potential sellers to enter into M&A deals ahead of any possible change in the U.S. administration.

“So if, for example, in 2021, you don’t have a retroactive tax increase, but do have a stated policy that they will increase capital gains in 2022, then you would anticipate a lot of sellers running to the exits to get their deals done,” Song said.

Another factor Song cited is a possible reduction in federal spending after the U.S. government allotted trillions of dollars to economic stimulus package in response to the COVID-19 pandemic.

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