Middle-Market Public Policy Roundup

In this week’s roundup, we look at the ongoing election, which continues into its third day without a decisive winner. We also summarize a rule change at the Securities and Exchange Commission that could make it easier for some companies to receive private equity backing, and an announcement from a group of senators who want to rein in corporate governance.

Presidential Election Continues with No Clear Winner

• Record numbers of absentee and mail-in ballots prevented a decisive win for either candidate at the end of Election Night on Tuesday, with no clear winner emerging.
• As news agencies called midwestern states like Wisconsin and Michigan for Biden, support for President Donald Trump slipped throughout Wednesday. Biden also witnessed similarly positive results in Texas and Florida before those states fell solidly behind the president.
• Trump maintains a hold on the Southeastern U.S., while Biden retains Northeastern and Western states.
• Counting continues in Nevada and Arizona, which favor Biden, as well as in Georgia and North Carolina, which favor Trump.
• Eyes have now turned to Pennsylvania, which could prove pivotal in this race. The president is upholding wide margins, which are quickly closing as votes are counted in large population centers, including Philadelphia and Pittsburgh.
• Pennsylvania election officials said an official count of ballots may not be ready until Friday. [Middle Market Growth, Benjamin Glick]

M&A Professionals Weigh In

• The uncertainty surrounding the election and a potential change in administration may impact M&A through the remainder of the year and beyond, according to Rusty Wiley, CEO of Datasite, a software designer that caters to the M&A industry.
• While the election isn’t likely to change the timelines of most deals, a Biden administration is likely to bring changes, according to 150 M&A professionals surveyed in a recent report from Datasite.
• “A Biden administration could mean changes in environmental policy promoting rotations in clean technology and other renewable energy products as well as changes in taxing carried interest, which could have a big impact on private equity strategies going forward,” Wiley explains.
• Trump’s path to reelection is slimming, but still possible. Without any administration changes, 46% of dealmakers expect activity to be about the same as it is now, while 30% expect it to increase and 11% expect it to decrease, according to the Datasite survey. [Middle Market Growth, Benjamin Glick]

SEC Rule Change Could Direct More PE Funding to Small and Midsize Companies 

• The SEC voted on Monday to simplify its exempt offering framework in the hopes the agency will promote capital formation and expand investment opportunities while preserving investor protections.
• The amendments address gaps and complexities in the exempt offering framework that impede access to capital for issuers and access to investment opportunities for investors, according to SEC Chairman Jay Clayton.
• “The staff has identified various costly and unnecessary frictions and uncertainties and crafted amendments that address those inefficiencies in the context of a more rational framework that will facilitate capital formation for small and medium-sized businesses and benefit investors for years to come,” he said in a statement.
• The rule change includes increasing the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings.
• Rules previously favored large companies with “substantial” legal resources, Clayton said.
• In separate comments, Commissioner Hester Peirce said the changes to Rule 504, which increases the offering limit from $5 million to $10 million, could encourage more issues to use the exemption.
• Citing one commenter who reviewed the amendments, Peirce said this change could “increase access to capital by allowing issuers from communities and regions that do not have direct access to private equity and venture capital to more easily raise money from friends, supporters and local investors.
• The amendments follow the Commission’s June 2019 concept release and March 2020 proposing release on the harmonization of offering exemptions and benefit from extensive public engagement. [Middle Market Growth, Benjamin Glick]

Senators Want to ‘Reform’ Corporate Governance

• A group of senators announced the formation of a working group last week that would develop legislative proposals and conduct oversight focused on reforming corporate governance, which could result in measures to increase regulation on private equity.
• In a statement, Sens. Tammy Baldwin, D-Wis., Elizabeth Warren, D-Mass., Tom Carper, D-Del., and Mark Warner, D-Va., said the COVID-19 pandemic has underscored the urgency of reforming corporate practices.
• “Short-term financial pressure often pushes corporations to forgo necessary long-term investments, ignore the threat of climate change, and concentrate opportunity in ways that exclude too many of our communities,” they said.
• The group has endorsed a proposal from Warren known as the Stop Wall Street Looting Act, which would reform the private equity industry.
• Baldwin introduced the Reward Work Act, which would give workers a seat on corporate boards and restrict stock buybacks.
• Warner introduced the Workforce Investment Disclosure Act, which would to require companies to disclose investments. [Middle Market Growth, Benjamin Glick]