Trump & Partners LLP acquires USA (plc)

The most effective way to view Trump’s presidency will be through the lens of a private equity deal.

The two kings of private equity?

Trump’s election and the subsequent leadership style fit all the hallmarks of a traditional private equity deal.

Think about; first he appeals to the existing shareholders (citizens) making the case that the business (country) is significantly undervalued because its been run so poorly by its current management. Having then “acquired” the country he starts immediately making strident changes unencumbered by any concern for the politics of the remaining management staff.

From this perspective, and if you’ve had prior experience of private equity, it’s relatively trivial to extrapolate how other things will play out:

  1. He will lead with a razor focus on maximising short-term gains to ensure there’s maximum uplift in “valuation” before flipping the country to the next owner. What does this mean? Well, if you look at his recent approach to environmental & financial regulation he’s identified that repealing these will give an immediate boost with any downside risks being delayed until well past his ownership.
  2. He will look to replace expensive, capital intensive items with much cheaper substitutes that may look and operate the same. In some places this will be successful and a considerable amount of waste will be stripped out. But in others this will lead to an ultimate debasement of the brand.
  3. Partnerships (trade, geo-political etc.) will be reordered such that those that focus on delivering immediate benefit to the valuation will be prioritised whilst those that may present a longer term opportunity will be neglected.

So, if you consider this to be the environment that will exist for the next 4–8 years how do you position for it?

If you’re somebody who genuinely believes in the threat posed by climate change, an unbridled financial sector etc. you’re going to need to do some serious thinking about how you can approach those problems in a constructive, partnership manner. There’s a need now to work with the industries concerned to truly understand the drivers of the risks posed and how they can be addressed in a manner that unlocks further opportunities. The time of campaigning for all encompassing regulations that force a change in behaviour is likely gone for a significant period.

If you’re an investor the market, being one giant discounting mechanism, will continue to behave as it has until such a time as the reality of those short-term gains is delivered. Personally I remain sceptical of the current narrative which seems to be built on the idea that Trump can deliver all the short-term gains with non of the short-term costs. The one aspect of private equity leadership which we haven’t witnessed so far is the reseting of valuation perception to a lower base from which it is easier to rise from. The smart thing may be to face a material slump in markets now before you start really juicing gains, but that doesn’t look on the horizon at the moment.

Just as an addendum to this, thompspicks on Twitter raises a good point I overlooked which is that he will almost certainly use prodigious leverage to achieve his aims. This will require top notch relationships with the private finance sector to guarantee the most flexible terms (most PE firms have a lead bank with which they have a very close relationship).