Ralph Schlosstein Talks M&A Outlook After Midterms

Ralph Schlosstein · Evercore

Divided government historically brings compromise, growth and good markets, so the outlook is for a good economy.

Schlosstein says the midterm result bodes well for the economy, and he really believes that. He cites history: when Congress and the presidency sit in different parties' hands, the periods have produced some compromise, economic growth and good returns for markets. He expects the post-election environment to support growth and markets, though he expects compromise on fiscal policy to be rare and to add to deficit concerns.

“I think number one, it bodes for a pretty good economy. I really believe that. Historically, if you look at divided government, ... those have been periods of some compromise, economic growth, and good for markets.”at 3:43

Ralph Schlosstein · Evercore

Regulatory climate should stay receptive to big deals for about two years, since the executive branch controls it.

Schlosstein argues that most business deals are decided in the regulatory world, which the executive branch controls, not the legislature. Trump has governed mainly by executive order, and the only real check has been the courts, so he thinks the regulatory environment will be more receptive over the next two years than after that. He expects the Democratic House win to bring more regulation and antitrust oversight, but he says the executive branch still has two years to go. For a company weighing a large strategic deal, that makes the window attractive now.

“I think it's reasonable to conclude that the regulatory environment will be a little more receptive over the next two years than might be after that.”at 4:18

Ralph Schlosstein · Evercore

Global capital will keep flowing to America, given its deep, liquid markets and entrepreneurship.

Schlosstein says global capital will continue to go to America. He gives two reasons: it has the strongest and most liquid capital markets, and it has by far the greatest creative entrepreneurship. He says he would not trade America's position with any country or continent today. He does not weigh any counterarguments, such as the political shifts discussed earlier.

“global capital flows will continue to go to America. We have the single, we have the strongest capital markets, the most liquid capital markets.”at 4:40

Ralph Schlosstein · Evercore

Democrats' narrow far-left wing is a small minority, so Speaker Jeffries has more room to govern.

Schlosstein argues that the far-left candidates who won primaries get a lot of publicity but are a tiny share of the Democratic caucus, with only one senator running well to the left. He estimates they make up roughly 5–7% of the House caucus. He says the size of the House majority lets Speaker Jeffries pass legislation without them, which gives him more flexibility than Speaker Johnson had. He argues Democrats should focus on energy and food prices, housing and healthcare, not on investigations.

“Hakim Jeffries, who will be the new speaker, can actually get the majority of his caucus to go for something without any of those members.”at 6:25

Ralph Schlosstein · Evercore

US fiscal trajectory is unsustainable and will end badly, though timing and trigger are unknown.

Schlosstein calls the US fiscal path totally unsustainable and says it will end, adding that when it ends it will end badly. He cannot say what will precipitate the end or when. He expects divided-government compromises to follow the historical pattern of no new taxes for Republicans and more spending for Democrats, which would worsen the problem. He sees a mini Simpson-Bowles deal as a remote possibility. He ultimately believes the bond market will be the trigger, though he concedes something else may set it off.

“[The fiscal trajectory] is totally unsustainable. It will end. I've often said this. It will end. When it ends, it will end badly.”at 8:55

Ralph Schlosstein · Evercore

States have de minimis standing in antitrust, so the Paramount settlement with California was modest.

Schlosstein argues that states have only de minimis standing in antitrust, although they have large influence in other areas, including elections. He points to the Paramount deal with California. He was not involved in those talks, but he guesses that Paramount would probably have won in court and chose to settle for a modest sum. He thinks California agreed because its legal case was weaker than it wanted.

“in these areas, states have de minimis standing in reality.”at 12:30

Ralph Schlosstein · Evercore

AI progress won't be stopped, though state pushback will slow it, with Democrats likely to accept gradual progress.

Schlosstein calls AI the biggest thing to happen in his business lifetime and says it is central to American competitiveness. He does not expect the technology to be stopped, though he expects things to slow, citing the Texas data-center exposure raised in the question. He points to Pennsylvania's Josh Shapiro, who wants AI development slowed but not blocked, provided it doesn't raise utility bills or local taxes. He expects Democratic leaders to converge on progress that doesn't hurt less well-off households.

“AI is the single biggest thing that's happened in my business lifetime. It's incredibly important to America's competitiveness, and we're not going to stop progress. I do think things will slow,”at 13:44

Ralph Schlosstein · Evercore

Some AI companies are too frothy and will become pets.coms, but a few will become multi-trillion-dollar firms.

Schlosstein argues that AI currently draws money almost indiscriminately, and that this is a bubble, though a smaller one than in 1999–2000. He recalls his time at BlackRock analysing Cisco, whose valuation then required capturing 150% of the global router market, which was impossible. He concludes that some AI companies carry frothy valuations and will become the pets.coms of the cycle. Not all of them will grow into their valuations, but some will, and he expects a company worth several trillion dollars that doesn't exist today to be a fixture within ten years.

“right now almost anything AI attracts some amount of money. Not all of these companies are going to grow into their valuations.”at 16:12