The Markets Welcome US Voters' Split Election Decision

While the outcomes of both the U.S. presidential and Congressional elections are in no way a foregone conclusion, current indicators point to a split government with the Democrats likely to control the White House and Republicans narrowly keeping hold of the Senate. Despite the uncertainty, tech stocks are soaring, with Big Tech players leading the rally—even as they face criticism and regulatory scrutiny from all quarters on Capitol Hill—and the few remaining publicly listed ad-tech companies are basking in the glow. For instance, The Trade Desk reported revenues of $216 million for the third quarter, with the demand-side platform's market cap hovering around $30 billion—a valuation three times that of most of the ad industry's agency holding groups. Even with the prospect of a potentially interventionist Biden presidency, not to mention the Justice Department's nascent case against Google, sources believe a finely balanced Senate could be a forecast for smooth sailing for tech companies and pave the way for necessary market consolidation. PwC's Marc Suidan, an expert in mergers and acquisitions in the tech, media and telecoms sectors, told Adweek the rise of tech stock prices in recent days is indicative of a "super positive" outlook from the market over the coming years, with earlier speculation about big corporate tax increases now less likely. "If the White House and Senate were under one party, they definitely would face some scrutiny, and it would pass almost anything," he said. "The fact that it's split is what's driving the market to be positive if they [Big Tech and potential M&A deals] are going to be scrutinized, both parties would have to be in agreement, which is not easy." Suidan went on to describe how M&A deals in the telecoms, media and technology sectors paused only briefly as economies across the globe attempted to adjust to the Covid-19 pandemic and noted that gaming companies, in particular, were active in the space. Earlier in the week, some sources had speculated that the remainder of 2020 may witness a flurry of M&A activity with participants eager to close deals in advance of (anticipated) significant increases in capital gains tax and/or potentially heightened regulatory scrutiny. Now, with the looming prospect of a Democrat-controlled White House and Republican majority Senate, some believe the coast is clear for a relatively frictionless consolidation of the digital media sector. "Business would like a Biden White House and Republican Senate," said Terence Kawaja, CEO of investment bank Luma Partners, noting that deals are moving ahead regardless of the election results. "With a split government, that means that you generally get less government." Meanwhile, Kyle Evans, managing director of equity research at financial services firm Stephens Inc., noted how potential M&A deals at the lower end of the digital media sector are likely to benefit from governments' continued scrutiny of a handful of major players. "I see very little regulatory risk within ad tech on the M&A front given they are competing in the shadows of the largest companies in the world," Evans said. "There are 20-plus DSPs and 60-plus SSPs in the marketplace, and a handful of public companies with very strong balance sheets, so consolidation in open internet ad-tech seems like the natural outcome to us." Although, Kawaja did note that while the sector may benefit from a light-touch regulation regime at the national level, there is an industrywide realization that it must correct some of the long-established practices that have prevailed in the digital marketing industry, or else it will face rigorous government scrutiny—as evidenced by this week' Proposition 24 vote in California. "I think people are cognizant that the whole data infrastructure and approach needs to fundamentally change," he said. "A lot of people are trying to figure out what the industry looks like post-cookie ... it requires different technology approaches, and that is good for dealmakers."